Registered User
Joined: 12/8/2004
Posts: 1,301
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If you follow Griffiths elliott theory, we were going to make new highs in the dow, sp-500 and nasdaq. It turned me into a temporary bull. I closed my short positions yesterday, and went long again yesterday.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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HNC,
So what you are saying is : depending on who's book you buy we are in
a bull or bear market?
(Sorry to all EWT I couldn't resist)
Good Luck
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Registered User
Joined: 12/8/2004
Posts: 1,301
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In a way, yes. Everyone interprets elliott wave theory differently. What separates griffiths from the rest is that he looks for ABC correction waves. It can be very difficult as you know, to figure out what wave we are in. It is not difficult to see when we are in an ABC correction mode. After the correction mode is over, the stock will revert back to the original trend before the correction. The key is to know when this intermediate trend is over. It is usually considered over on what we would all call a one day reversal, but we need confirmation to be certain, so the next day we place an order to buy over the high of the one day reversal(if we are looking to go long). If you get your order filled the next day, you are in pretty good shape because you can set your stop a couple of ticks below the low of the 1 day reversal. This is a very low risk position.
What is especially nice about this, is if the stock was in a severe downtrend, your c wave will be up. It is possible for this c-wave to actually turn into a Wave 3, and not just be a c-wave. If it does, your profit can be more than 10 times your risk. If it just stays a c-wave, and goes back down again, you can still gain 2-4 times your risk.
The whole point is that every trade you make is a LOW RISK TRADE. You could have many losers and still come out way ahead.
The key to everything though is risk management. For stocks he recommends a risk of no more than 1% of your portfolio. You only buy enough shares that if you get stopped out you lose 1%.
There is a whole lot more to it. You use fibonacci to determine your potential risk vs reward.
The overall sp-500 and nasdaq were in a correction ABC mode. Since the overall trend was up, the C wave correction is down. This should mean we are on our way to Wave 5. Wave 5 should take us above our old highs, but it doesn't necessarily have to do so. Once wave 5 is over, all BETS ARE OFF.
Here is something I really never knew, but I guess I should have known.
There was a study done about risk/reward. They chose 100 doctors and guaranteed them that 60 percent of their stocks would go up, and 40 percent would go down (all by the same percentages). All they had to do was choose how much to buy and when to sell. I believe they all started with 10,000, or 100,000. At the end of the study there were only 2 doctors that had more money than they started with and there were no commissions on any of the sales.
I have always based my purchases on risk/reward, but I did not ever consider how much I should buy. I would normally just buy about 10-20,000 dollars worth on my opening position. I guess I have just been lucky over the years.
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Registered User
Joined: 12/8/2004
Posts: 1,301
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An additional sidenote. I went long on three stocks based on this analysis yesterday. One stock was IMMR. Moneystream is good. Tsv22 is not. Macd is below 0 but equal to its period average.
Another stock was HARB. TSV is good. Moneystream is average. Short interest is 13.2. MACD is above 0 and about to cross over period average.
The last stock was FDC. Moneystream was good, MACD is above 0 but below period average. TSV22 at 0 line but in a short but upward swing.
What I am going to try to determine is what, if any indicators I currently use (tsv,ms,macd) will confirm my successful purchases, and what underlying indicators were not good on my failures.
This is more fun than I have ever had investing.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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HNC
Remember when you control risk you also control the number of stocks you can own. If you use an 8% stop and you determine your risk should be 8%
then you can only own 1 stock. If 2% you can only own 4 stocks and so on.
You should look at how many stocks you typically like to own and use that
to determine your risk percent. Rather the some arbitrary 1 or 2% number.
You picked a good day to turn bullish.
Thanks
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Registered User
Joined: 12/19/2004
Posts: 457
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HnC,
As for Elliott, I agree with some of your observations.
<quote>
" It is usually considered over on what we would all call a one day reversal, but we need confirmation to be certain, so the next day we place an order to buy over the high of the one day reversal(if we are looking to go long). If you get your order filled the next day, you are in pretty good shape because you can set your stop a couple of ticks below the low of the 1 day reversal. This is a very low risk position."</quote>
I do this with candle sticks. When I see the price approach a fib level, and I see confirmation from momentum indicators, then I'll wait for a candle reversal pattern to tell me when to go long or short. My July 7 call on the SP was an example of this.
<quote>
"What is especially nice about this, is if the stock was in a severe downtrend, your c wave will be up. It is possible for this c-wave to actually turn into a Wave 3, and not just be a c-wave. If it does, your profit can be more than 10 times your risk. If it just stays a c-wave, and goes back down again, you can still gain 2-4 times your risk.</quote>
This is true. It doesn't matter what the wave count is, as long as the scenarios overlap during the time you are in the trade.
Once you get the price to go in your direction, all of the conventional tools come into play: trailing stops, above market sell targets, etc.
As for the guy's count. It is wrong, in my opinion. I doubt we will see new all time highs in the SP, Nasdaq, or Dow anytime soon. He is making the same mistake every other Elliott wannabe is making.
This bull market is an ABC correction, espeically for the Nasdaq. The problem: all of the Elliott books draw ABC corrections as downtrends. This is not correct. A correction is a counter trend move. You can obviously have a major downtrend, and an cyclical bull as an ABC bull market.
We haven't budged far from key retracement levels on the SP or the Nasdaq. We are within 2% of 1250 (61.8% retrace) on the SP, and at the 23.6% level on the Nasdaq.
His count doesn't mesh well with all of the negative fundamentals overhanging the market.
As I posted previously, we are either past a major top, or very close to one, with one more minor high yet to come. But even in that latter scenario, the market could correct 5%-10%.
So be careful following any guru. Think for yourself, especially with a new methodology.
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Registered User
Joined: 12/8/2004
Posts: 1,301
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I think I might have misled you with my statements. The nasdaq is not going to new highs, it is going to be close or better than it's recent new high which was 2318. The same with the s&P. It will come close or slightly surpass its recent high of 1290.
I still believe the market will have a major drop, but I also believe now, more than ever that I will be able to pinpoint the time more accurately. Of course, I still have a lot to learn, but his concepts are very exciting.
Heck, I may spend the 1795 bucks and buy his program. It uses telechart information and he has videos on every part of it. The videos are informative whether you buy the program or not, and his part 1 elliott wave theory is FREE.
If I buy it I will let you guys know how well or poorly it works.
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Registered User
Joined: 12/19/2004
Posts: 457
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"I think I might have misled you with my statements. The nasdaq is not going to new highs, it is going to be close or better than it's recent new high which was 2318. The same with the s&P. It will come close or slightly surpass its recent high of 1290"
Both are possible, if you look at a previous count of mine.
But for a new high to be made, I think the market has to correct a bit more before trying to test the new highs, FWIW.
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Registered User
Joined: 12/8/2004
Posts: 1,301
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QUOTE (diceman) HNC
You picked a good day to turn bullish.
Thanks
I sure did. I got out for a loss on KNDL yesterday. This stock went above my stop point but I wanted to hold on to see if the market would bring it down. Then I did an elliott abc analysis on kndl and got out yesterday. Look what it did today. I shouuld have got out of it 2 weeks ago.
I still think JCP is a good short, but apparently not right now. I actually came out ahead on that, but only about 100 dollars after holding it for about a month.
FISV was a great short for me, but I closed up my stop on it and got stopped out.
I actually still have my SIRI short. After I did my ABC analysis of that stock it shows it should still go down. I put a 5.90 stop on it this morning, the stop was at 6.09. I was up 2000 on this short a little while ago until cramer came along. I still think I will make over 2000 on it.
The funny part of all of this is NOW YOU ARE IN TROUBLE. Another bear turned bullish. We have to be close to the top now, lol.
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Registered User
Joined: 12/8/2004
Posts: 1,301
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QUOTE (diceman) HNC
Remember when you control risk you also control the number of stocks you can own. If you use an 8% stop and you determine your risk should be 8%
then you can only own 1 stock. If 2% you can only own 4 stocks and so on.
That's really not what he is saying. I am probably explaining it wrong. Let me try this again.
Say you have 100,000 in your account. He is saying that you cannot lose more than 1000 on any one trade.
If a stock you wished to purchase was 5.00 per share, but your stop had to be at 4.00 a share then you may only buy up to 1000 shares. Actually for stocks he recommends .5% to .75, and 1 to 3% for commodities. If you only had 10,000 in your account then to take that risk you could only buy 100 shares. He is not telling you to take the total risk, he is just telling you not to allow the risk to be more than this for any one trade.
This is why it is so important to get into really low risk trades. If you can enter trades with only .20 -.40 cents risk, you may get stopped out more often, but remember, you are only buying after a reversal day that is confirmed by the following day. If the waves are true, the odds are with you. I would think if ms, or tsv are with you as well, it really is a low risk position. If you have a .40 risk and you can sell your stock for just 1.25 more than you paid for it you have a 3-1 reward for your risk.
Now obviously .20 risk on a two dollar stock is a lot more than a .20 risk on a 20.00 stock so you have to use some judgement here. It only takes a 1.00 move on a 20 stock to have a 5-1 reward to risk ratio.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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HNC
Im not sure I get this yet. I was looking at a spreadsheet with fixed stops and it seemed to make sense.
Then I started to change numbers and it didnt.
If you have a 10,000 account and you want to risk 2% then
you can risk $200 per trade.
PRICE---STOP--- $RISK---SHRS----AMT
56-----51.52--- 4.48-----45------2520
33-----30.36--- 2.64-----75------2475
22-----20.24--- 1.76-----114------2508
15-----13.8-----1.2-------167------2505
10008 ACCOUNT
This made sense to me with an 8% stop and risk limit of
2% per trade you can hold 4 stocks.
Now look at this.
PRICE---STOP--- $RISK---SHRS-----AMT
56--- 51.52---4.48-----45--------2520
33----- 32----- 1--------200-------6600
9120 ACCOUNT
All I did was lower the risk on the second
trade and now I am out of money to buy more
stocks.
I guess I am missing something or this just does not make sense to me.
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Registered User
Joined: 12/18/2004
Posts: 180
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I think what you're talking about is how much of your total account you are willing to lose before you stop trading. Obviously, this would not be your whole account. If you are willing to lose 6% of your account total, and use a 2% risk per trade (regardless of what percent your stop is of the entry price--that is irrelevant), then you can hold 3 positions. If 1%, 6 positions, and so on. Total account risk and risk per trade are different, but tied together.
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Registered User
Joined: 12/18/2004
Posts: 180
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In the example you gave, you would probably be better to risk less than the 2% per trade on second trade, and spread the money out over other stocks.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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Stmjd74,
quote:
"In the example you gave, you would probably be better to risk less than the 2% per trade on second trade, and spread the money out over other stocks."
This is something completely different then setting you risk at 2% and sticking with it. In your case I'm setting my first trade risk at 2% and my
second trade at something else.
quote:If you are willing to lose 6% of your account total, and use a 2% risk per trade (regardless of what percent your stop is of the entry price--that is irrelevant)"
As I understand it the dollar stop per trade is what you use to "adjust" your
risk. So I don't understand how your entry price and stop can be irrelevant.
In the risk analysis systems it goes something like "limit your risk
per trade to a certain % of your portfolio". ( in this case I chose 2% or $200 for a $10000 account)
Now I determine the risk of the trade and use that to "size" my position.
If you notice all the trades in my previous post lose $200 if the stop is hit.
My points: 1. done as is this limits the amount of positions you can have.
2. less risky positions "take over" the portfolio. In the second example the second stock position is about 2.5 time as large as the first and I'm already out of money for new trades.
3. I realize that I can buy less of position number two but then
I'm not really following the position sizing rules. I'm doing something else.
Thanks
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Registered User
Joined: 12/18/2004
Posts: 180
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As I understand it, in your second example, 200 shares would be the maximum position size you could take on, and 2% would be the maximum risk you would take per trade, but would not necessarily have to, and you would still be following the rules of position sizing as long as you did not exceed 200 shares, or 2% risk. IMO, it would not make sense, as you stated, to take the full 2% risk on that one trade, in this case. Another solution would be your first example, where you always set your stop at the 8% level, regardless. Your first example might be better in the long run. I have never tested either method to see which is better. It does seem that your first example would keep you more diversified and reduce your risk overall, and give you more time to grow your account in the long run. That method may be especially good for someone with a relatively small account size.
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Registered User
Joined: 12/8/2004
Posts: 1,301
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Diceman, it does make sense to buy more of something when you have less risk.
Let's make this an easier example.
You have 100,000 dollars in your account and you can't lose more than 1000 per trade.
I think you are confusing asset allocation, with risk. They are too separate things.
The price of the stock is meaningless as long as you never risk more than 1000.
If you want to buy 10 stocks each with a 1000 total risk in each stock then you are risking 10,000 at one time, but you are still within the parameters of risk management. That does not mean its the same to buy 1 stock with 10,000 risk. The price you pay for the stock has nothing to do with the risk. The amount of the loss if you get stopped out is your risk.
Now because you chose to invest in 10 stocks your asset allocation may be better, but you also put more money at risk than the person who bought anything less than 10 stocks. You would have to always keep your portfolio value in mind if you got stopped out at your present stops because if your are doing poorly(but not stopped out yet) you may only be able to risk 700 per trade on future trades.
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Registered User
Joined: 12/8/2004
Posts: 1,301
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Let's even put it a different way.
You have 100,000 dollars. you are only allowed to lose 1000 per transaction.
You make 10 trades risking 1000 all at one time. After 4 months you get stopped out and lose 10,000.
Now I come along and I have 100,000. I can only risk 1000 per transaction.
I make two trades the first month and get stopped out. I now have 98,000
I make 4 trades the next month and get stopped out. This time I was only allowed to lose 980 per transaction. I lost 3920 dollars instead of 4000.
Now I go into the next month and make 4 more trades, but this time I have only 100,000-2000-3920=94,800. I can only lose 948 dollars per trade. I get stopped out on all of them and lose 3792. Your loss was 10,000, my loss was 9712 dollars. If you kept doing what you were doing in my example, you could only do the 1000 per trade 10 more times and lose before you were out of money (assuming no winners). If you always adjust by the CURRENT SIZE OF YOUR PORTFOLIO you could make hundred and hundreds of more trades.
That is what is called controlling your risk.
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Registered User
Joined: 12/8/2004
Posts: 1,301
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My math was wrong in the above. Instead of 94800 is should read 94080 which means my next 4 trades would have a loss of 941 *4=3764. My total loss would have been 9684. As these numbers progress downwards the difference is truly amazing. Risk management keeps you in the game longer. The longer you are in the game, the better the chance you might have a double or triple on a stock.
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 Gold Customer
Joined: 10/7/2004
Posts: 264
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I'll add my $.02. You need both risk control and money management in your trading.
Money management will tell you how to allocate you account, ie; no more than 5, 10, 20% in one trade. You must protect your account from a catestrophic loss. So putting 50% of your account in one position, even though your risk control parameter will allow it, is asking for trouble. Anyone who has been on the wrong side of a blowout gap knows what I mean.
Risk control deals with your per trade amount risked, ie; 1% of account equity. You make both calculations and take the lesser share amount. If you have a small account, you will frequently be taking less than your max allowable risk. That's ok. You can last forever.
Once I learned and applied these concepts, my trading improved greatly. Good luck.
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