Trend Following and Elliott Waves
The trading system being espoused here is Trend Following, so what’s the deal with all of the Elliott Wave charts?
“The Elliott Wave Principle is a form of technical analysis that traders use to analyze financial market cycles and forecast market trends by identifying extremes in investor psychology, highs and lows in prices, and other collective factors.”
“Trend following is an investment strategy that tries to take advantage of long-term moves that seem to play out in various markets. The strategy aims to work on the market trend mechanism and take benefit from both sides of the market, enjoying the profits from the ups and downs of the stock or futures markets.”
Those two definitions from Wikipedia and they illustrate a subtle but tradable difference in the mechanics of our trading models. Elliott Waves forecast trends while Trend Following identifies and acts in accordance with trends.
The False Bar Stochastic and Elliott Oscillator which, much like EW analysis, are another ways of defining and confirming trends. We use them both. The combination of the two forms a basic pattern recognition trade, The Wave Five Buy/Sell Signal which is a reliable way of identifying when a counter-trend move, i.e. a smaller trend moving against the larger trend, is losing momentum and the larger, more dominant trend is about to reassert itself.
The take away from all of the above is that this is a Trend Following service. Trends are identified by algorithms that are represented on the charts by cycle lines an in the Trend Tables by reversal thresholds. We can stop there and do very well in our trading. These other tools, EW and Wave 5 Signals, help to confirm the trends and tell us when counter-trends have run their course. We use them all because not one of them is perfect on their own, but when combined, they are that one step closer.