THT’s Market Analysis Part 2

Part 1 was very basic and I kept it that way on purpose, let’s have a look at Elliott Wave (EW) analysis and how it would have been applied to recent market activity – apologies but this is going to be a long drawn out post, but you need to see EW in action to see its good and bad points

If you are new to EW or don’t understand it, you’d be better off taking a look at this link and downloading the relevant free lessons from the experts :

The Elliott Wave Principle

In the 1930s, Ralph Nelson Elliott, a corporate accountant by profession, studied price movements in the financial markets and observed that certain patterns repeat themselves. He offered evidence of his discovery by making a number of accurate stock market forecasts. What appears random and unrelated, Elliott said, is actually tracing out a recognizable pattern once you learn what to look for. Elliott called his discovery “The Wave Principle,” and its implications were huge. He had identified the common link that drives the trends in human affairs, from financial markets to fashion, from politics to popular culture.

Robert Prechter, Jr., president of Elliott Wave International, resurrected the Wave Principle from near obscurity in 1976 when he located copies of R.N. Elliott’s books in the New York Public Library. Robert Prechter, Jr. and A.J. Frost published Elliott Wave Principle in 1978. The book received enthusiastic reviews and became a Wall Street bestseller. In the late 1970s, gloom was pervasive, but in Elliott Wave Principle, Prechter and Frost called for a roaring bull market akin to that of the 1920s, to be followed by a record bear market. As the stock market rose, knowledge of the Wave Principle among private and professional investors grew dramatically.

When investors and traders first discover the Elliott Wave Principle, there are several reactions:

  • Disbelief that markets are patterned and largely predictable
  • Joy at having found a “crystal ball” to foretell the future
  • And finally the correct, and useful response – “Wow, here is a valuable model I should learn to use.”

Just like any system in nature, the closer you look at wave patterns, the more structured complexity you see. It is structured, because nature’s patterns build on themselves, creating similar forms at progressively larger sizes. You can see these fractal patterns in botany, geography, physiology and the things humans create, such as roads, residential subdivisions… and – as recent discoveries have confirmed – in market prices.

The first step in Elliott wave analysis is to identify patterns in market prices. At their core, wave patterns are simple; there are only two types: “impulse waves,” and “corrective waves.”

Basic Elliott Wave Pattern

Impulse waves are composed of five subwaves (labeled as 1, 2, 3, 4, 5) and move in the same direction as the trend of the next larger size. Impulse waves are so named because they powerfully impel the market.

A corrective wave follows, composed of three subwaves (labeled as a, b, c), and it moves against the trend of the next larger size. Corrective waves accomplish only a partial retracement, or “correction,” of the progress achieved by any preceding impulse wave.



THT’s Market Analysis – Part 1

Hello and welcome to The Hovis Traders Market Analysis series

I intend to analyse market action of late and try to dumb it down into an understandable process, looking at a variety of trading concepts, using charts only. Also I won’t be covering everything in detail so there may be aspects not fully covered – remember I don’t read or look at the economic news, political decisions or the like, I’m not concerned with it in any of my trading decisions.

The overall aim is to explain my interpretation of recent and present market action into tradeable strategies and techniques – there’s little point being 100% correct on the markets if you don’t profit from that analysis!  (before any comments are made – NO ONE and I mean NO ONE is right on market direction 100% of the time – NO ONE) Like I’ve said before find me a trader who’s 100% correct all the time and I’ll happily pay them 50% of my lifetime profits using their strategy – facts are at best you can expect to be right 80% of the time and within that 80% you’ll make some mistakes which reduces it even further.

There is a multitude of trading possibilities out there – for a start there’s 100+ indicators available and you could make a trading strategy using any combination of them – straight away the combinations of potential possibilities is massive!

My Market Analysis series may take a few weeks to publish ( I don’t write this blog as a priority), they’ll be in order and sequenced – I won’t publish anything else until there finished and after this series of Market Analysis I plan to produce and publish a series of Market Education posts.

This year I feel thoroughly justified at taking most of July off to watch the greatest Cycle race in the world ( The Tour de France) Bradley Wiggins did and achieved what I had dreamt of doing as a 10 year old, it gives me immense pride to finally have the first ever Britain to hold onto the Yellow jersey for so long and win so convincingly – well done Bradley

OK let’s begin:

We’ll look at the S&P500 Index (see chart below) which covers just over a years worth of data of DAILY price bars – again I’m not bothered about looking at Candlesticks, I’m happy using bar charts as they tell me all I want to know.

Chart 1

As we can see over the past year prices have moved quite a bit, BUT if you took June 2011 – June 2012 there was no growth for the buy and hold investor – this is why I trade.

Next chart please,

Chart 2

Clearly shows downtrends and uptrends – I classify an uptrend as a series of higher highs and higher lows – although there are times when even this definition fails and catches you out.

Chart 3

See the RED box over the Price?  At that point a fall like that can happen from a number of things, 2 or them are that more sellers entered the market than buyers and prices were driven down hard and fast OR it might just of been the case that NO buyers entered the market forcing prices to fall until such a point as buyers were found.

Hope this makes sense as you will often read in the Press that the bears won over the bulls – this is not always the case as markets can freefall just because there’s NO buyers left wanting to buy, the sellers might not be selling!

I’ve not highlighted the other points that this might of occurred as they are evident from the chart.

Take a closer look at any of the 3 charts, look at the bars.  Each bar = 1 days trading, it tells you the Open, the High, the Low and the Close

I realise that we’re looking at PAST market data, I’m not helping you to make market predictions, I’m trying to show you what markets, how they work etc so that you can build that into a workable strategy and technique.

A lot of people get killed trying to predict the markets next price level, by understanding what the market is capable of you can at least prepare yourself

Right, that’s enough for this tutorial part 1, there’s still loads to cover and the next posts explore deeper as I realise that Part 1 is very very basic.

Part 2 will look and focus in depth on Elliott Wave analysis

Until later….

Quick Update

Hi All,

Just a real quick update as I’ve not posted anything for a while, but what I have been doing is ADDING new pages to the site AND updating current pages.

Being a successful Trader/Investor Is just like being an Olympian athlete – you have to be on top form all the time to win the gold medal.  Olympic athletes don’t just rock up to a meet in their track suit and perform.  They’ve researched, practised, trained, analysed and tested out their method hundreds of times on the track and in their minds. When they get to the start line of course they’re nervous, but they know what they have to do and if their body is good enough then they’ll win gold.

Obviously someone who’s 4 feet tall is not going to win the high jump!  They will have found a sport that suits their physical statue and then excelled at that sport – I terms of how this relates to trading and investing?

It’s like picking the wrong set-up for your personality.

As I say in some of my opening pages the reason I trade is for the freedom it provides – although,  I’ve done very little since May, I’m a massive cycling fan and the 1st Grand tour of the season starts in May and there’s something on pretty much most months thereafter to September, normally I just place trades and let them run but this year I’ve not really bothered – just because I’m a trader does not mean that I have to have a position on all the time – I’m bound to have missed many trade opportunities during that time.

I’m about to head off on holiday soon and I do have plans to run a post about recent market action and what to expect next based on the signals that the markets giving off, but that’s likely to be sometime during September.

Current market action has given off classic trend channel opportunities within a choppy upwards channel – I will no doubt highlight this in September as I can cover a host of strategies in the one post – I’ve not explored this, but there looks like an Elliott Wave, Trendline, THT Trampoline (you’ll not know this one as it’s not published on here) my ABC to D set-up and a host of things that would leave most traders thinking urgh what’s happening.

As I mention elsewhere on the site, markets can do 1 of three things – move upwards, downwards or sidewards – you need a trading strategy for ALL 3 market potentials, as you or I don’t have a clue how long the current market type will last for

Parting thought:  If you wanted to be a brain surgeon, you’d have to study and learn for years, be shadowed in your work before being let loose.  How come millions of people think they can read a book on trading and start to make millions?  the very fact there’s a 5% success rate in this game answers the question

Parting thought 2:  How come in Europe they’ve had 18 crisis summit meeting and nothings fixed?  If governments, economists and the like know how to fix things how come they’ve failed in 18 meetings?  Logic says if it;s serious it’d of been fixed after meeting 1 – The Hovis Trader says: If they knew what they were doing and they actually controlled the economy then there’d never have been a problem in the first place – what out for the blog on this later on.

In the meantime take care.

The Hovis Trader