Trading
System
PlaTneTrade.com offers an online swing trading
system. Daily stock picks are added to the watchlist and a real-time portfolio
sends instant e-mail alerts on every trade signal.
The trading strategy
is based on Elliott Wave Theory and technical analysis. Advanced charting
software screens for candidate stocks every day, and every chart is
checked visually to confirm the patterns. Multiple timeframes and
proprietary indicators are used to find low risk, high reward setups. The
system produces short term swing trade signals, long and short. Usually, the
trades take between 1 and 5 days to complete.
We look for potential
patterns within waves 3 and 5 of impulsive waves, the two longest,
strongest moves. A breakout (or breakdown) at confirmation levels (1 or
4) of a high beta stock would be followed by an explosive
move. Then, within a short timeframe we would expect the stock to
reach the target price level. In the case of a wave 3 trade, risk is
defined by the price distance from 2 to 1, and reward from entry level to 3.
Most often than not, we take profits before reaching target prices. Bellow
(1. Breakout) is an example on how we determine the entry point and
risk:reward ratio.
We restrict the screening process to high beta
stocks, but we stick to the plan and keep the losses small and let the winners
run. A a result, we get setups with explosive profits which produce
consistent results, in all market conditions.
The idea behind the service
is to simplify a complex process by laying out all the information in a very
user friendly, well organized interface, where all the data needed to
make informed decisions is easy to find. An automated real-time portfolio can be
used as a guide as to when to enter a trade, make adjustments to an open
position, or exit a trade. Sign
up for a three week trial period to test our system.
Elliott
Wave Theory
Ralph Nelson Elliott
developed the Elliott Wave Theory in the late 1920s by discovering
that stock markets, thought
to behave in a somewhat chaotic manner, in fact, did not. They traded in
repetitive cycles, which he discovered were the emotions of investors as a cause
of outside influences, or predominant psychology of the masses at the
time. Elliott stated that the upward and downward swings of the mass
psychology always showed up in the same repetitive patterns, which were then
divided into patterns he termed "waves".
The theory is somewhat based
upon the Dow Theory inasmuch as the price movements move in waves. It was
understood by the technicians at the time that because of the fractal nature of
the markets, Elliott was able to break down and analyze the markets in much
greater detail.
Elliott was able to spot unique characteristics of wave
patterns and make detailed market predictions based on the patterns he
identified. Fractals are mathematical structures, which on an ever-smaller scale
infinitely repeat themselves. The patterns that Elliott discovered are built in
the same way. An impulsive wave, which goes with the main trend, always shows
five waves in its pattern. On a smaller scale, within each of the impulsive
waves of the before-mentioned impulse, five waves can again be
found. In this smaller pattern, the same pattern repeats itself ad infinitum.
These ever-smaller patterns are labeled as different wave degrees in the Elliott
Wave Principle. Only much later were fractals recognized by
scientists.
In the financial markets we know that "every action
creates an equal and opposite reaction" as a price movement up or down must
be followed by a contrary movement. Price action is divided into trends and
corrections or sideways movements. Trends show the main direction of prices
while corrections move against the trend. Elliott labeled these "impulsive
waves" and "corrective waves".
The interpretation of the Elliott Wave
Theory is as follows:
- Every action is followed by a reaction.
- There are five waves in the direction of the main
trend followed by three corrective waves (a "5-3" move).
- A 5-3 move completes a cycle.
- This 5-3 move then becomes two subdivisions of the
next higher 5-3 wave.
- The underlying 5-3 pattern remains constant,
though the time span of each may vary.
Let's have a look at the following chart made up
of eight waves (five up and three down) which are labeled 1, 2, 3, 4, 5, a, b
and c.
You can see that the three
waves in the direction of the trend are impulses, so these waves also have five
waves. The waves against the trend are corrections and are composed of three
waves.
In the 70s, this wave
principle gained popularity through the work of Frost and Prechter. They
published a legendary book on the Elliott Wave, entitled "The Elliott Wave
Principle The Key to Stock Market Profits". In this book, the authors predicted
the bull market of the 1970s, and Robert Prechter called the crash of 1987.
The corrective wave formation
normally has three, in some cases five or more, distinct price movements, two in
the direction of the main correction (A and C) and one against it (B). Waves 2
and 4 in the above picture are corrections. These waves have the following
structure:
Note that the waves A and C go
in the direction of the shorter-term trend, and therefore are impulsive and
composed of five waves, which is shown in the picture above.
An impulse-wave
formation followed by a corrective wave, form an Elliott wave degree, consisting
of trends and countertrends. Although the patterns pictured above are bullish,
the same applies for bear markets, where the main trend is down.
