Last Chance is Not Done

OK, market is stress testing my Last Chance posts mercilessly, but has not yet blown the latest call. You can read tonight's STU during Free Week - they are hanging tough on their call but acknowledge that the market may blow it - or not - tomorrow. If tomorrow does not reverse down, today was a strong enough rise to indicate a continuation to new highs, specifically the 50% retrace at Sp1121 (Dow10334). Here is their analytical point:

[T]oday’s not the important day in analytical terms, it’s tomorrow, the “day after.” If the market remains internally strong through tomorrow’s session, then Primary wave 2 (circle) up from the March low will have a new lease on another rally phase. If tomorrow shows little or no follow-through, then today is likely a one-day short-covering squeeze that runs the bears out of the market just in time for the next leg down.

Free Week gives you a chance to check out a special STU tomorrow after the close.

Neely has been waiting and waiting to put out a position and this morning says the pattern suggests one more high (the final last chance). A break of Sp1102 confirms. His interpretation of ewave makes it very unlikely that retrace above 61.8% is a wave 2. Now, ewave rules allow a retrace of wave 2 up to 99%, but rarely will a wave 2 go beyond 78.6%, which happened today; and under Neely's rules it would have to continue in a corrective manner until it ends below the 61.8% retrace (Neely tends to end waves not at the high or low point but the break or bifurcation point). 

Final item of interest in the STU: they think Gold topped today. You goldbugs may want to mine the STU for their gold count. 

As to other ewavers, Walter Murphy notes that volume today, while high, is below the 21 DMA, meaning that unless we see a volume as well as price rise today (another big up day) he thinks this is more a blowoff top than a kickoff.

Daneric's closing post is interesting. He wonders if we are about to kickoff into a triple zigzag (rare!). An alternative is that the Dow (at least) is in an ending diagonal that is expanding. I will pose a third scenario that comes from Neely's experience (although not his current count): often after a double zigzag the next wave is a triangle. EWI would not expect a triangle ending a rising double ZZ, but their typical count would be a series of nested 1-2s, which I find they count way too often (it is their most often blown count). An ending terminal triangle looks like a nested 1-2 structure if it has a flat bottom and declining top. In any case the recent three week drop would be the X wave after the double ZZ up, and this would be the A leg of an ending terminal triangle. Watch for it, since it means the rise will not go much higher (eg. the 50% retrace) but the corrective nature of the market would extend out into Feb 2010 - consternating bull & bear alike! 

Comments

[Michael]

Wow, so many "alternate" counts and so little time or money. It's hard to imagine that anyone actually applies this kind of "theory" to actual trading of the markets on a day in, and day out basis. I would suggest that anyone that has simply traded off price and trend, let alone the inter-market relationship of the Dollar over the past 8 months has made far more money than any of these "Perma-Bears" who have been anxiously anticipating the beginning of P3, but have had to revert from one alternate "count" to another as prices have continued higher.

[Gartley]

Prechter and Hochberg are on record as having stated that there are clearly 5-waves down in the SPX from the Oct. 21st high at 1101.36 to the Nov. 2nd low at 1029.38

Prechter is also on record as having gone 50% short back on August 5th in his monthly Wave Theorist when the S&P was roughly 1000.

It's been three full months since that initial call and the guy is still "underwater" on that trade. If you bought August, September, or October puts based on that recommendation - - - you've been wiped out. If you have November puts, you've suffered serious decay in premium and only have 9 days left to recoup your losses. If you sold short S&P futures, you've either sustained huge losses or you've had to roll from the Sept contract into December at an even higher contango.

Quite frankly, I can't wait for the S&P to take out the highs at 1101.36 so that we can FINALLY BE DONE with these idiots and their "theory".

All this publicity and notoriety from the guy that was an outright PERMA-BEAR from 1993-2004 and cost people a fortune!

[wakeupsid]

Good thing is that you can always find that X wave between correction to impulse and vice-versa.

Good luck in identifying correctly those impulses and corrections!

[Wakeupsid]

One more update with alternate count!
Yelnick are you crazy! After just reading all the posting!

Insanity has no limits!

[yelnick]

Wakeupside, the wave count is always odds based. Except in rare cases, there is almost always an alt count of plausible odds. I wish we had statistical counts, but so far ewave is largely an artisan business. Zoran Gayer had been accumulating odds, and had a really good set of stats for corrections (eg wave 2s go 50-61% retrace xx% of the time). One inspiration for starting my Zoran computerization project was to see if statistical machine learning could discern those odds and generate probabilities for wave counts. I expect that much of the time the machine would say, "no clear count." This is fine since traders/investors really should go in on high odds counts only, and stay out when the count is obscure. In the ewave blogs and commentaries the level of precision that is implicitly being required by many of the criticisms is absurd.

[Greg]

Gartley, I doubt one could put it better. I wouldn't leave Neely out though. That said, one of these days the market will turn south and, guess what, they will come up with a huge "I told you so" claiming victory and access to holy grail. Nothing against Prechter (or Neely), they are selling a product after all that nobody obliges us to like but it's the audacity that is annoying to say the least.

[Francis Schutte]

This is why I don't trust these EWaves and theories...way to difficult to understand and the correct numbering can only be done 'ex post' and hence it doesn't serve the purpose.
It is unwise to disconnect the technical analysis from the fundamental and we (www.goldonomic.com) do all we can to connect them. We know it is the dynamic behind correct scenario's for the future.
Having said this, we're seeing and living the Zimbabwe effect: in other words, as long as we have Quantitative Easing, markets will go up in Nominal Terms.

[DG]

access to holy grail.

If I had a penny for every time someone said "holy grail" or "crystal ball" on this blog, I'd put Buffett's wad to shame.

The funny thing is that each time it's said, it's in the context of someone claiming that that is what wave theory claims to be. Typically, that person is not using wave theory to trade. And, please, since neither Daneric nor Kenny nor any of the other "perma-bear" e-wavers are posting here, can we please not bring them up and mention for the billionth time that they aren't trading their counts?

It's a rule-driven method for identifying trade set-ups and hypothesizing what the risk-reward ratios are for those set-ups by analyzing and forecasting potential market movements in terms of standardized patterns, e.g. Zigzags, Flats, Triangles and utilizing market price action to derive logical requirements enabling trade entries and exits.

Do you think that equity analysts think their company reports are "crystal balls" or the "holy grail" of trading? No, they are guides that attempt to explain to investors and traders why a given company's stock (or a stock index) should trade at price X in the future, instead of price Y that it trades at currently. Wave theory is the same thing, an attempt to explain why asset ABC should trade at price X in the future, when it is currently at price Y, only rather than analyzing company financial statements or macroeconomic reports, the wave analyst analyzes charts. And, just like an equity analyst would change his price forecast if a company missed his original earnings estimate or a macroeconomic number came in divergent from expectations, so does a wave analyst change his forecast when price violates specific levels that invalidate the original hypothesized wave count.

In the ewave blogs and commentaries the level of precision that is implicitly being required by many of the criticisms is absurd.

Bingo, Yelnick. Again, I have yet to see anyone turn their high-powered critical lenses on their own methods in any of these posts. I'm not surprised, though, since they spend so much of the day thinking up ways to bash wave theory, it must not leave much time for any tweaking of their own trading methods.

Then, when you ask them to explain their non-wave-based trading methods, it's all this simple crap like MA-crossovers or determining trends by using moving averages and derivatives of moving averages or RSI/MACD/stochastics/other "proprietary" indicator-based trading. Yeah, that's WAY more sophisticated than the 70 pages of rules making up Chapter 3 of "Mastering Elliott Wave", the other 200+ pages of that book explaining the rules in more detail and the hundreds of pages of "Question of the Week" additions to those rules. You could probably fit most of the wave bashers' trading methods on one side of a cocktail napkin and have room left over for a few dozen phone numbers. Not that simplicity doesn't have it's place, but there's also such a thing as over-simplifying.

Anyone who has ever heard of the "philosophy of 'as-if'" will understand how even in the face of uncertainty, certain models can be useful tools for decision-making. Wave theory is one of those tools.

http://en.wikipedia.org/wiki/Hans_Vaihinger

Again, nothing to do with "holy grails" or "crystal balls" any more than an MBA from Harvard Business School with a CFA is the "holy grail" or "crystal ball" of fundamental analysis.

[www.facebook.com/profile.php?id=743767884]

"Final item of interest in the STU: they think Gold topped today."

How many times does that make it that they think Gold has topped now? I am loosing count.

I just wished that when gold was at $750 and they were calling for $650 in the "short-term" update that they had mentioned it was going to go there via $1100!! They are still calling for $650. The hubris ..

[bmccaw]

The statistic bias Yelnick is looking for is pure abitrary, as such back testing is done on survivors only. I did similar work a few years ago on simple ABC waves, or 123 waves on all stocks that trade over 20 years on NYSE and NASDAQ, the outcome is 50/50 for the whole basket, thats base on the survivors, if its base on every stocks that was existed, the statistics could be even worst, and there might some bias in individual stocks, but its really not significant (anything between 50-60% probability is not that helpful in particular you are thesis is based on backtesting).

Someday people will realize E wave is just another schizophrenia disorder rather than true technical analysis.

Market moves does produce some kind of pattern but its not that forward telling where it might go.

[bmccaw]

I wonder when the SPX is trading back to 1200-1300 level, what will these e wave gurus going to say? The economy is bad, unemployment is high, deficit is huge, but the market keeps going higher? Anytime when there is a big drop, the ewaver will say the market is topping and eventually it will did one of this 30% correction and they think crash is coming? Why? The market keeps gridding higher, and usually the bubble is bigger and last longer than anyone thought, what if this USD carry trade extend for next 2 years before it blows up? And SPX makes new high? Anyone bother to comment?

[G2]

simple crap like MA-crossovers ... Yeah, that's WAY more sophisticated than the 70 pages of rules making up Chapter 3 of Mastering Elliott Wave, the other 200+ pages of that book explaining the rules in more detail and the hundreds of pages of Question of the Week additions to those rules

Sometimes so called simple methods are best as using an MA crossover would have kept you in the long trade from the March lows for much of the time. Remind me again, of just how much NeoWave subscribers have lost since March by betting against the trend using their 70 pages of rules?

[Account Deleted]

Don't want to be disrespectful or something but you have call the top 3 moths ago every single day with some exceptions.
So. Trying to call a bottom or a top is not really possible.
Why don't you just follow the tape. Someday this trend will change and you will go short like 2008. Of course you will miss a big part and let some profits on the table but at list you are not fighting this bull trend.
I don't think EW is a good strategy since all other indicators can be wrong sometimes. NO, with EW we are only wrong when we're counting :)

Anyway I still like your blog a lot. So don't want to offend anyone. Just my 2 cent'.

[Bird]

We have at least two camps weighing in here, and I want to raise a third.

1. Camp #1 takes the continual re-calibration by the Elliott pundits as the market goes up as proof that the wave theory is bs.

2. Camp #2 says "screw you" the theory is just a probability tool and I can out-trade you anyway, so there.

3. I am in Camp #3. While I highly respect DG and think he probably out-trades me (I've averaged about 20% over the last 5 years--good but not phenomenal), I am a unrepentent seeker of the holy grail. The ONLY reason I trade is because something intuitive was touched by the promise of higher order when I first began looking at the markets in the mid-80s. I am convinced the markets continually express such a high order of geometry as to be beyond the reach of linear, non-scaled computer modeling.

We set our sights too low. The order may be above rationality, on a level of suprarationality. The wave theory was for me a beginning of that search, and if nothing else, it sets forth clues as to market structure that keep showing up as the markets unfold.

Consider this. Fibonacci ratios express abundantly in the markets, in time and price. And yet...why can't most of us effectively trade them? Because they can only be seen clearly after the fact? How could that be so? What is really going on? Just research every instance in which fibonacci ratios express both time and price from a single swing, focus only on the confluences of time and price, from that one swing, and see if it is all bs or not.

One way in which my findings seem to differ from both Camp #1 and #2, is that the patterns I see unfold give precise set ups for major tops and bottoms. (Note: unlike the above example of fibonacci time and price, this seems to require proper scaling similar to Gann's work.) But there is (thus far) a catch. While virtually all major turns will be geometrically locked in, redundantly so, sometimes so will lesser ones, thus making it difficult to know which is which. But high precision is very much a possibility...sometimes.

I think God is a geometer and the markets dance with it BEYOND BELIEF.

[Trending Cow]

Wait a minute. Question for all who care to discuss or yelnick can spend a post on this. What happens if the bear trendline from the 07 high is broken to the upside? We are getting super close...too close if you ask me. Maybe you can call me a contrarian indicator, but a break above seems bullish regardless of a pullback that comes beyond it. Does anyone have an opinion on this?

[G2]

I think God is a geometer and the markets dance with it BEYOND BELIEF

That's my feeling also as the underlying geometry does seem to represent a higher order than is expressed in the waves themselves.

[DG]

Remind me again, of just how much NeoWave subscribers have lost since March by betting against the trend using their 70 pages of rules?

Posted by: G2 | Tuesday, November 10, 2009 at 01:57 AM

I'd rather remind you that I've told you every time you bring this up that it was an "execution" problem, not a "strategy" problem. Neely did not follow his own rules. Period. He allowed subjective bias to stop him from taking a long trade when objective conditions dictated taking it. Using NeoWave rules on the SPY, a long trade at 83.31 would have been perfectly justifiable, back at the end of March (don't forget that Neely went long on March 9th and caught most of that first move up). Using trailing stops, that trade probably wouldn't have been stopped out until late June, for a gain of 5-6 SPY points. Then, a short trade, such as Neely did recommend, should have been initiated and failed. A second long trade should have been recommended at SPY 96.12. Depending on how aggressively stops were managed one could have remained in that trade much of the time since, so let's estimate that trade as capturing half of the move up from SPY 87 to SPY 110, or another 11-12 points. Even if Neely had, upon exiting those trades, recommended shorting the market, the points lost would have been fewer than the points gained on the long side. Yes, buy and hold would have been a superior method. It's clear you don't understand NeoWave and, while a focus on the P&L of a trading method is always a good idea, one must also look at how the method is being implemented relative to how another trader could implement the same method.

I didn't say simple stuff can't work. What I have said is that NeoWave allows for more precision and, since precision is one of the building blocks of risk management, a higher-precision tool is preferable to a lower-precision tool. I can't force you to make risk management your primary focus in trading, but I strongly recommend doing so. Once you do so, you will understand why I hold NeoWave in such high regard and why some 7-month period of underperformance is not enough to change that opinion.

[DG]

Daneric's closing post is interesting. He wonders if we are about to kickoff into a triple zigzag (rare!).

If we are, then there is no way that the wave to follow will be a wave-3 of anything.

Even stating that a Triple Zigzag could occur as wave-2 and then be followed by a huge crash in wave-3 shows how illogical these EWI-type counts are and how they don't take into account the implications of specific patterns for future market action.

Neely's Chapter 10 deals with "Advanced Logic Rules" and explains the logic of the relationship of patterns that exist "side-by-side" in wave counts. Here is what he says about Triple Zigzags:

"This is the most powerful corrective pattern that can occur. If its movement is downward, it implies the market is currently very weak. If its movement is upward, the market is currently strong. A Triple Zigzag will hardly ever be seen but, when it does occur, it is usually the longest segment of a Terminal or Triangle. When part of a Terminal pattern, it should definitely be the Extended segment. Based on market position, if a Terminal is not possible, the only choice is that a Triple Zigzag is the largest segment of a Triangle. If part of a Flat or Contracting Triangle, a Triple Zigzag can never be completely retraced by the pattern which immediately follows it of the same degree."

Neely categorizes patterns into three buckets, depending on how much they should get retraced. A Triple Zigzag falls into the bucket that expects a 60-70% retracement. Obviously, nothing is guaranteed in the markets, but to put the idea that we are about to enter the third phase of a Triple Zigzag and that it will be followed by a P3 wave down shows how little these guys have grasped the underlying logic of wave patterns.

[G2]

it was an "execution" problem, not a "strategy" problem

Oh, really? I suggest you go back and reread the S&P forecasts from March thru May where Neely was consistently calling for an imminent renewed decline to below 400. The strategy for his subscribers was to be positioned for "a 400+ point decline within 1-3 months" which "would bring with it untold economic misery and suffering".

[philippine fred]

Given all the technology that ewi seem to have it would be pretty simple to run a demo trading account based on there wave forecasts, I would suggest that the reason they dont do this is because it would show a loss. If you had followed the charts for the futures chap this year you would already be on the street in the gutter.

All the trend funds have struggled this year which means that the markets are corrective in nature at the moment as trend funds need impulsive moves and once the impulsive moves reassert the trend funds will start making money again whether the markets are going up or down, worth thinking about.

[philippine fred]

finally....is yves on holiday as havent heard from him in a while. BDI is flying upwards while the drys are moving steadily lower.

[Mamma Boom Boom]

Bulls are not scarce.

[DG]

Oh, really? I suggest you go back and reread the S&P forecasts from March thru May where Neely was consistently calling for an imminent renewed decline to below 400. The strategy for his subscribers was to be positioned for "a 400+ point decline within 1-3 months" which "would bring with it untold economic misery and suffering".

Posted by: G2 | Tuesday, November 10, 2009 at 06:14 AM

You're conflating two things, trading and forecasting. Initially, you were talking about trading losses and I explained why those were "execution" problems, but that the solution to those problems was already built into the NeoWave rule-set. Now, you are talking about a forecast that didn't pan out, but that was a possibility at the time. I've ALSO already said that the particular pattern that was/is forming did not lend itself to making that particular type of macro-picture call and that I would have been more cautious about saying the decline was imminent.

One of the major issues of NeoWave is the problem of "Emulation". One type of emulation is dealt with in "Mastering Elliott Wave", but a new type of emulation has emerged with the emergence of the Diametric pattern and that is the emulation of a Triangle by a Diametric. In the case of Neely's top call in June, I think this is what occurred. As a result, what he called a Triangle ending in June with wave-E was actually a Diametric and the drop into mid-July was wave-F and the rise since has been wave-G.

If what I think happened is correct, Neely's forecast was early, but essentially reflective of what will happen.

But, by all means, continue to focus on the bear market rally from March to now as if it invalidates all of NeoWave. It's obviously what you're committed to doing anyway and nothing I say will change that.

[DG]

While I highly respect DG

Thanks, Bird. The feeling is mutual, I assure you.

[Michael]

"In the ewave blogs and commentaries the level of precision that is implicitly being required by many of the criticisms is absurd."

Yelnick, I disagree.
The fact of the matter is that when these bloggers are continually changing their count to "alternate" counts during a 60% rally, you know that (at the very least) something is terribly wrong with the knowledge base of the blogger in question, let alone E-Wave theory.

[Michael]

"Then, when you ask them to explain their non-wave-based trading methods, it's all this simple crap like MA-crossovers or determining trends by using moving averages and derivatives of moving averages or RSI/MACD/stochastics/other "proprietary" indicator-based trading.

Yeah, that's WAY more sophisticated than the 70 pages of rules making up Chapter 3 of "Mastering Elliott Wave", the other 200+ pages of that book explaining the rules in more detail and the hundreds of pages of "Question of the Week" additions to those rules."

---Posted by: DG | Monday, November 09, 2009 at 09:53 PM

DG, I will assume that this is a thinly veiled jab at me and my trading methodology/system given that you mentioned MA's and derivatives. Unlike you, I don't feel a tremendous need to DEFEND a "theory" on this blog so I won't spend 12 paragraphs rambling on . . . trying to make esoteric distinctions between "forecasting" and the inability to "execute" strategy which lead to betting against the TREND as the NeoWavers succumbed to this past year.

That having been said, you seem to have great difficulty in accepting the simplest (and most effective) form of trend identification and confirmation. Instead, you seek some sort of SOPHISTICATION, as if one needs to be sophisticated in their approach to the markets. Perhaps that massages your ego and makes you feel rather "elite" amongst us simpletons, but the fact of the matter is that identifying the TREND is the single biggest factor in consistently making money as a trader. If this fact doesn't appeal to your ego and you want to make fun of that, be my guest.

While your buddy Neely was looking for 400 point declines in the S&P and trading AGAINST THE TREND, my MA system was keeping me LONG all through the rallies that came off the March bottom, and the rates of change on those MA's prevented me from getting faked out by any "pullbacks" along the way.

I think that you make a terrible mistake in thinking that SOPHISTICATION is what is needed in order to make money successfully trading the markets.

Truth be told, the market moves far too fast for most people to "interpret". And by the time they figure out where their "count" is amongst the forest and the trees (reading through those 70+ pages from the book "Mastering Elliott Wave"), the move has already occurred.

There is something very significant in being able to identify and confirm TRENDS via moving averages, and their derivatives. It's downright laughable that someone cannot even see any value in such a trading methodology because (in their opinion) it lacks SOPHISTICATION.

Now I've heard it all.
Too funny!
:)

[Michael]

"If what I think happened is correct, Neely's forecast was early, but essentially reflective of what will happen.

But, by all means, continue to focus on the bear market rally from March to now as if it invalidates all of NeoWave. It's obviously what you're committed to doing anyway and nothing I say will change that."

Posted by: DG | Tuesday, November 10, 2009 at 07:03 AM

Neely's forecast back in June was early?
Gee, ya think?

How much did this cost his NeoWave followers?
Do they have any money left?

[Mark Davis]

"it was an "execution" problem, not a "strategy" problem" - - - DG

Oh, really? I suggest you go back and reread the S&P forecasts from March thru May where Neely was consistently calling for an imminent renewed decline to below 400. The strategy for his subscribers was to be positioned for "a 400+ point decline within 1-3 months" which "would bring with it untold economic misery and suffering".

Posted by: G2 | Tuesday, November 10, 2009 at 06:14 AM

Yep, I was a subscriber back then and remember his forecast oh too well.
I, and his NeoWave followers got totally crushed. It was extremely painful. I lost a lot of trading capital on that forecast, and to add insult to injury the market was making a major move in the opposite direction that I missed out on.

And DG says that Neely was merely early?
Early from what???

And DG goes on to claim that Neely will still be right at some point because "it is essentially reflective of what will happen" . . . Are you kidding me???

He's been wrong and is now calling for much higher S&P targets!

[Mamma Boom Boom]

Like I said yesterday, "Load up on PUTS".

[twitter.com/DrBubb]

Wow.
There are some "very tough customers" here.

If Prechter and Neely are so very bad as some here say, then praytell who are the far better analysts that you are comparing them with?

I really want to know the names, and web URLs. Thanks in advance.

[DG]

Unlike you, I don't feel a tremendous need to DEFEND a "theory" on this blog so I won't spend 12 paragraphs rambling on

Which you then did anyway.

I think that you make a terrible mistake in thinking that SOPHISTICATION is what is needed in order to make money successfully trading the markets.

Well, RenTech says they've got a few hundred servers crunching numbers non-stop trying to find patterns and Goldman was just in the news due to some algo code of theirs being stolen and prompting an FBI visit to the perpetrator. I guess unlike you I seek sophistication because that seems to be the way the big players lean.

Perhaps that massages your ego and makes you feel rather "elite" amongst us simpletons, but the fact of the matter is that identifying the TREND is the single biggest factor in consistently making money as a trader. If this fact doesn't appeal to your ego and you want to make fun of that, be my guest.

Hmmm, I've said about a friggin' billion times that my main praise for NeoWave is RISK FRIGGIN' MANAGEMENT, retard. Have the 29 years of trading you've done damaged your reading comprehension so much that you haven't gotten that message yet? Obviously, I have a different philosophy of trading than the one that says identifying the trend is the most important factor in making money. Why? Because studies I've seen show that risk (and money) management contribute far more to trader returns than any "trend identification" capabilities. You win the trading game by minimizing losses and letting the market stop you out of winners. That's regardless of trade entries, which can almost be random, so long as you do the proper things risk management-wise. Obviously, anyone entering a trade thinks he knows what the trend is, even if he's entering the trade explicitly as a counter-trend trade. It's how you identify the price-point at which your interpretation of the trend is wrong that matters most to your returns. That is where NeoWave excels beyond any other type of method. Period.

NeoWave is different from Neely's recommendations is different from how I trade. Neely is like a mentor, but his recommendations aren't the only source of my trading executions. I pull the trigger many times when Neely recommends standing aside and stand aside many times when he recommends pulling the trigger. I am more about the method than the man.

Neely's forecast back in June was early?
Gee, ya think?

How much did this cost his NeoWave followers?
Do they have any money left?

Hey, Mikey, I've got 30-odd e-mails from Neely making market calls just like the one he made in June, across the various markets he follows. About 80% of those calls "pan out" over an appropriate time frame. Yelnick's seen the list, as have the readers of my blog. I know you're Mr. "Only The Last 7 Months Mean Anything" in terms of trading methods, but some of us have an attention span longer than a gnat. If we use your criterion that the last 7 months are the only valid test of one's trading acumen, the best traders on the planet are apparently the talking heads on CNBC, who've been pounding the table on the market since March 9th. You're in great company there.

Truth be told, the market moves far too fast for most people to "interpret". And by the time they figure out where their "count" is amongst the forest and the trees (reading through those 70+ pages from the book "Mastering Elliott Wave"), the move has already occurred.

That's why in a couple of places in MEW, Neely says you have to basically memorize the book, if you want to be truly effective using the rules. Once you do, the setups start to become easier to identify. Obviously, there's a learning curve. If you don't want to put in the effort, how could the method possibly pay off for you? It's like taking a half-dozen practice free throws a day and then expecting to be able to hit one in the 7th game of the NBA championships with the game on the line.

Then, with today's automated trading platforms, you set up your conditional entries and exits and let the market put you into and out of trades based on your interpretation of the wave structure. My trades sometimes occur hours or even days after I identify a set-up because I identify the precise point at which my set-up becomes more likely, i.e. does what the market would need to do in order for my wave count to be "real", e.g. if I'm counting something as a wave-2 down, I wait until the market reverses and goes back above the top of wave-1, and use that as my entry. I'll sometimes enter a trade 10% or more above where I identify the set-up, because I need the market to "prove" to me that the set-up is real. As Livermore said, he never minded paying more if the market did what it needed to do for his interpretation to be right, rather than paying less just to get a lower entry price. If the market's going to go my way, that 10% is a small price to pay.

So, anyway.

[TC]

"If Prechter and Neely are so very bad as some here say, then praytell who are the far better analysts that you are comparing them with?"

There are none.
It's far better for you to develop your OWN trading system or methodology.
At least that way, if you make money there is a huge amount of satisfaction knowing that you did it yourself and it gives you even more confidence going forward . . . and when you lose money, you have no one else to blame but yourself. Trust me, there's a lot of beauty in that.

But as you can well imagine, some people wish to "believe" in others.
That way, they have someone to blame when they lose money.

[MA]

>some people wish to "believe" in others. That way, they have someone to blame when they lose money.

Why are you and Michael constantly blaming others then?

[Hockthefarm]

Yelnick:

On the timing front, I couldn't agree more. And when Prechter made his call to get short, he quickly added that he is often early. And at no time did he tell folks to buy SPX puts with a Sept, Oct or Nov expiration date. The lunacy here is that if anyone was that good there would be no market.

I follow Prechter to understand what the world will look like 3 to 5 years from now. On that front he is very clear and I think way, way, way out on a limb. If he is wrong on his macro calls, then it is adios muchachos. His basic advice is to sit in cash, because 3 to 5 years from now you are going to be able to buy a lot more with it than you can today. Tomorrow's squiggle notwithstanding, that is how he should be judged imo.

[yelnick]

Michael, the flip flopping of weekend ewaverers is a sight to behold; I criticize that. But the sudden disdain for ewave when a call goes wrong or a count gets changed is presuming too much precision. My core complaint of the weekenders is their counts flop around based on the passion of the moment - they seem immersed in herding behavior, trying to be right, rather than showing the tough temperament of a good analyst.

[yelnick]

DMA - no offense taken. Read the About Me blurb on why this blog is named 'Yelnick'.

[DG]

There are none.
It's far better for you to develop your OWN trading system or methodology.
At least that way, if you make money there is a huge amount of satisfaction knowing that you did it yourself and it gives you even more confidence going forward . . . and when you lose money, you have no one else to blame but yourself. Trust me, there's a lot of beauty in that.

But as you can well imagine, some people wish to "believe" in others.
That way, they have someone to blame when they lose money.

Posted by: TC | Tuesday, November 10, 2009 at 08:31 AM

What if the trading system you'd develop on your own is the same as one someone else developed on their own? I mean, we're all looking at pretty much the same market, right? I have an very analytical and logical mind (I used to do software development, then worked in corporate strategy and risk management for a variety of companies after business school), so I am drawn to methods that squeeze as much of the subjectivity out of trading as possible. If I were to invent my own system, it would pretty much look like wave theory, specifically the NeoWave version of it, so why reinvent the wheel?

The funny thing about your last couple of sentences is that almost every post I make is the EXACT OPPOSITE of what you say. I am giving Neely CREDIT for helping me make money on my own. It sucks that his calls haven't been working out, but at some point, I do agree that a trader needs to take the bull by the horns and trade more or less on his own. At many points during the past few months when I've had my own blog, I've posted real-time criticisms of Neely's trading calls, most of which have ended up being valid criticisms because the trades didn't work. In that same time period, I've had almost a 90% success rate on my own trades (average holding period of about 5 days), solely based on NeoWave.

NeoWave can definitely make you a better trader, but you have to put in the work to make it happen. It's not automatic.

[Hockthefarm]

I reached for my sixguns

http://hussmanfunds.com/rsi/vshapedrecov.htm

But there were only two.

[DG]

I, and his NeoWave followers got totally crushed. It was extremely painful. I lost a lot of trading capital on that forecast,

Hey, man, I feel your pain. Trust me, I know what losses are like and they are definitely painful, but they are also the only tuition the market will accept. If your key takeaway from it was to never use NeoWave again, that's obviously your prerogative. I also had a big loss in 2007 when Neely was calling for a big rally. I did buy options and when we had that big dump in February/March, they expired worthless. The problem was clearly me, though, especially my selection of trading vehicle. Obviously, had I just gone long ETFs, I would have been able to benefit from the rally that ensued following that minor blip. OK, my fault, clearly.

And DG says that Neely was merely early?
Early from what???

And DG goes on to claim that Neely will still be right at some point because "it is essentially reflective of what will happen" . . . Are you kidding me???

He's been wrong and is now calling for much higher S&P targets!

"Early" in the sense that the pattern he thought was coming to and end was actually only the first five segments of a seven-segment pattern, rather than the five segments of a five-segment pattern. That's my current hypothesis, anyway, and the market hasn't done anything to "break" that count. If that hypothesis turns out to be correct, the call for new lows will be proven out and we'll go under the March 2009 lows at some point in 2010.

The pattern allows for a move to over 1200 before this occurs.

I will say this. I left my job in July to trade full-time. I study markets and charts a minimum of 12-14 hours a day. I plot my own NeoWave intraday charts in Excel, entering all the data by hand, to keep a finger on the market's pulse. I watch almost every tick of every trading day, then when the cash market closes, I watch the futures, then watch the foreign markets overnight. This is on top of constantly reading and re-reading Mastering Elliott Wave and Neely's other publications. I'd be interested to see what others who are saying they can't get wave theory to work for them are doing in those areas. Neely is always my starting point for my view of the markets because his analysis is so methodical and provides a great base to work with. But, it's still just that, a starting point. After Neely's top call failed, I decided that I was going to start being more aggressive making my own NeoWave-based trades. Since then, I've made 41 trades and had 36 winners/5 losers, with an average holding period of about 5 days. There were 10 trades that I should have taken, but subjectively allowed myself to talk myself out of. All 10 were winners. Depending on whether I include the trades I should have taken or not, I'm running at a 50-70% annual rate of return. On a fully-leveraged basis (taking advantage of full margin), my rate of return would be about 400% annualized.

So, you tell me why I should listen to anyone's complaints about Neely when I'm getting results like that, even if only for a 4-month period?

[MA]

>I also had a big loss in 2007 when Neely was calling for a big rally.
>The problem was clearly me

DG, it is not good that Neely was wrong in 2007 and 2009. I do not think the problem was you.

[vipul garg]

DG,
i am very sure that Michael or whoever else will not get past you in evidence based assessment of neely and neowave and wave theory in general. they have little or no understanding of wave theory or neowave themselves( they havenot expressed it so far atleast).
they are blog/call followers, so they will only want 'right' calls all the time .they have no appreciation for the method .

i find it appalling when somebody compares a kenny /daneric/atilla or similar in the same league as Neely.and i say it without being disrespectful to these guys...he is way above their league as an analyst.incomparable in his understanding, method and rigour.

coming back to trading, though we converse quite often on your blog, but a great show with 36/5.Time and his own work are the only resources a trader controls.

[TC]

"Since then, I've made 41 trades and had 36 winners/5 losers, with an average holding period of about 5 days. There were 10 trades that I should have taken, but subjectively allowed myself to talk myself out of. All 10 were winners. Depending on whether I include the trades I should have taken or not, I'm running at a 50-70% annual rate of return. On a fully-leveraged basis (taking advantage of full margin), my rate of return would be about 400% annualized.

So, you tell me why I should listen to anyone's complaints about Neely when I'm getting results like that, even if only for a 4-month period?"

---Posted by: DG | Tuesday, November 10, 2009 at 09:55 AM

All this from a guy that criticizes people for "Only The Last 7 Months Mean Anything" . . . And you're actually BRAGGING about a mere 4-month time period?

You can't be serious.

[DG]

All this from a guy that criticizes people for "Only The Last 7 Months Mean Anything" . . . And you're actually BRAGGING about a mere 4-month time period?

What, one guy can do it on one side of the ledger and another can't from the opposite perspective? If they're both invalid, they're both invalid. Take from my 4 months what you will or won't.

Still, I see no reason to listen to you bozos when I'm getting the results I want. That's my main point. From the way you guys talk about wave theory, I'd be lucky beyond belief to have 2 straight winning trades and I'd need to change my count 25 times over a two week period to get them.

[Michael]

DG, I think you make a rather grandiose assumption on your part to claim that NeoWave excels beyond any other type of method when it comes to identifying and facilitating RISK MANAGEMENT.

As someone that has had access to Stevie Cohen and traders at SAC, I would agree with you that setting-up risk management is extremely important.

However, in your attempt to DISCOUNT the significance of trading with the TREND, it sounds as though you act as if using NeoWave is the only way in which one can measure risk. I would suggest otherwise. And I would also continue to emphasize just how important it is to TRADE WITH THE TREND and how much a trader's success ratio increases exponentially when doing so. You say you can cite studies that claim otherwise? Feel free to post a weblink to those studies. I would be most interested in seeing them.

Coincidentally, I must say that I find it highly ironic that even with all of your rambling on this board and unbridled praise of Neely and NeoWave, the latter failed back in June because, in your words:

"it was an 'execution' problem, not a 'strategy' problem".

So, for all of it's glory in helping one to set-up RISK MANAGEMENT parameters, NeoWave wound up failing miserably last Summer because it was unable to "execute" such (risk) parameters.

Interesting.
Sounds pretty hypocritical my friend.

[vipul garg]

Michael,
why would you want to drop in the names of cohen and sac when talking of a mudane thing as risk management?
"I would agree with you that setting-up risk management is extremely important." is a complete maeningful sentence just by itself.

[Diamond Jim]

As long as Bird raised the issue of metaphysics in the stock market, I thought I would throw in my two cents. When I began trading over thirty years ago, I had a very detached ‘scientific’ approach to everything and just wanted to make some money. I am still trying to make some money, but along the way my whole attitude changed. Ask yourself why Elliott wave should work at all if everything is random. Then I realized that quantum physics is based on randomness, but you can get results from the Schrödinger wave equation to 10 digits or better. Gann in particular led me into a quasi-mystical approach to the markets. I started to take seriously all sorts of mumbo jumbo that I would never look at before. My sole criteria was to find something that worked.

After a few spectacular successes with these methods, the conviction grows that there is something to them. As often imperfect as they are, they seem to be tapping into some deeper reality that I barely suspected exists when I began. Something is out there that imposes a surprising order on random events. I still don’t know who or what that is, but I have a very firm conviction that it exists and it has changed my attitude towards everything.

[Greg]

DG, I followed your responses here over a couple of days and it sounds that you have convinced yourself that NeoWave with appropriate risk management is a winner. I tell you upfront I have no reason whatsoever to question the truthfulness of your claims in your last entry. Your software engineering and risk management background might give you an edge to apply NeoWave efficiently. I just try to understand your numbers a little better here. If I assume your average loser created the same p/l with your average winner then – approximately, let’s not loose the forest for the tree – 31 (net) winners were generated over a period of 4 months(correct me if I misunderstood) with an equivalent annualized return of 50-70% (let’s say 60%). That means over the 4 month period your return was 1.60^(4/12)-1 = 16.78%. In simple terms that means each (net) winner generated about 16.78/31=0.54%, or about half a percentage point(unlevered). I would guess you traded stocks based on context. It is admirable to see you returning 16.78% over a period of 4 months but I modestly say that even a scalper could do this. If you trade AA, or BAC or F or MS or QCOM etc doing on average 31/4=~8 trades a month for 54 bp return each is great, don’t take me wrong, but given the fact that we were in a market with strong trend is not, in my humble view, sufficient to lead someone to the conclusion that he is up to something really big. Again, I speculated about what you traded but I would be ready to be convinced – if that matters to you – if I see you also trade JPY, EUR, OIL, Equity Indexes, live cattle, soybeans etc. over a longer period. Actually I am ready to fund you if I see what I like.
Now, regarding your hard work ethic, it’s impressive but believe me, all guys who visit here follow markets closely too. Watching the futures and the FX after market closes is a minimum requirement for someone who wants to take himself seriously. As far as Excel, there are data providers who could help you import data. Entering data manually makes your research non real time and you are smart enough to finger out what this means.
In conclusion you started really impressively with quotes from Neely’s book(s) leading one to believe that you may have developed a robust application that prevents you from bias and then you ended up to entering data on excel, following the markets tick by tick(be my guest but I am not sure that’s the way) and then following markets after hours as the main thrust of your approach. And your return figures are good but they -MAY BE - market directionality dependant – did you test your approach to other markets that may not be directionally moving & over longer periods? I am ready to give you the benefit of the doubt but based on your record and your approach I wouldn’t be in a rush to shut down people who have been where you are now and may differ in their view. All of us would do anything to defend our convictions and you have the right to do too but based on your saying I don’t see sufficient justification for your overconfidence. As always, I stand to be corrected.

[DG]

So, for all of it's glory in helping one to set-up RISK MANAGEMENT parameters, NeoWave wound up failing miserably last Summer because it was unable to "execute" such (risk) parameters.

Huh? The trade Neely went short on after his failed top call was actually a profitable trade. Why? Because he adjusted to what the market was actually doing, as opposed to "sticking to his guns" and forcing an interpretation on the market that wasn't there. His FORECAST was incorrect, but RISK was absolutely properly managed on that trade. As I recall, he got his subscribers 32 ES points on it.

However, in your attempt to DISCOUNT the significance of trading with the TREND, it sounds as though you act as if using NeoWave is the only way in which one can measure risk. I would suggest otherwise.

Huh, again? Dude, I absolutely did NOT say that NeoWave is the "only way one can measure risk", I said that it has the most robust risk management techniques. Why? Because it is as fast or faster than any other trading method in identifying the point at which the wave count is WRONG (note the caveat. I fully admit another system can be as fast as NeoWave, in theory. I just have never seen one).

As I mentioned above, among other things, I worked in risk management for a while after business school and I think I know a bit about it.

You say you can cite studies that claim otherwise? Feel free to post a weblink to those studies. I would be most interested in seeing them.

Wish I could, but it was a paper-based issue of "Stocks and Commodities" magazine, in the early part of the 2000s, as I recall. You might be able to find it in their archives online. I've looked, but it was so long ago that nothing immediately leaped out at me when I scanned the titles. What I do remember and the key point of the article, was that their study showed that when you decomposed traders' returns, risk management was the largest component of returns and market entries the least. Again, this makes sense because most statistical studies show that the market only TRENDS a small proportion of the time (which, again validates NeoWave's time rules about the relationship between time spent in Corrective patterns vs. time spent in Impulsive patterns), so there is usually no real TREND, except in the trader's mind. On the other hand, RISK is present in every trade, even when there is no TREND. So, intuitively, one can see why RISK MANAGEMENT is more important than TREND IDENTIFICATION.

[chartman]

all of this stuff: A trainwreck!

[Michael]

"Again, this makes sense because most statistical studies show that the market only TRENDS a small proportion of the time (which, again validates NeoWave's time rules about the relationship between time spent in Corrective patterns vs. time spent in Impulsive patterns), so there is usually no real TREND, except in the trader's mind."

Even if the market trends a small proportion of the time, we all know that according to Elliott, impulse patterns are not the only exclusive way in which a market can trend (up or down). Thus, I don't see this as validating anything that you have claimed above in regards to Neely. If anything, it does the opposite.