November Commentary

In the last commentary, we discussed a trade with Sirius Satellite Radio Inc. The issue was how should we deal with a trade gone sour. Obviously, most traders would simply exit at the stop loss level (if it was placed ahead of time). But what if the exit is not properly executed? It so happens that we presented an alternative to an immediate exit, providing a trader can sustain the drawdown for some time. In our analysis, we established that within a few weeks, the security would resume its bullish trend so we could exit with a profit for a trade that would last almost 3 months. Today, we are going to review the performance against our projection. If you noticed, the term projection was used, not prediction. Many Elliottists fall in this trap, they start predicting like if they were prophets; in fact we are projecting in a very hasardous environment, so we shield our trades with as much protection as possible assuming the projection could be wrong. Our projection was nevetheless very much in line with the chart presented today. In fact the price is now well above our conservative Highlighter projection. At this point we could exit the trade with 36% profit over 3 months.

 

 

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This takes us to a very important rule in trading: make a plan for your trade and stick to it. You can have a back up plan if you wish but once you have made a decision, stay with its execution. Now many will say why exit when the stock is still going strong? Because our trading plan was to exit once the target was reached, many other opportunities are there; staying in the trade could prevent us entering another trade that would just as rewarding while the present one will loose momentum. It is true that the next trade could be bad and this one may continue being bullish for a while. Then nothing prevents us from getting back into it, this only if we make an analysis of the new situation and build another trading plan.

All this prooves that Elliott did have a strong foundation to build his theory. We are not making our case on one trade but rather on cumulative statistics. Is the past a guarantee of the future? No but it is its foundation, all we need to do is continue monitoring and recording the dominant factors and their impact on the market. A brilliant general once said: "Those who ignore the past, are condemned to repeat it!". These words were repeated by generations of statesmen and politicians.

This month we have released a longer version of our manual; this book is more elaborate on individual indicators, experts, explorations, systems and templates. The book is still free. For those who are registerd customers, the download includes a Word and an Acrobat version of the book.