I have related to you in previous articles, that my early success at trading was in a great deal due to the book “Elliott Wave Explained” by Robert C. Beckman. Back in the early 90’s, I begun investing in stocks following the fundamental analysis tips in Peter Lynch’s book Beating the street. Back then I invested in Microsoft, Home Depot, Staples, and Scolastics among others that escape my memory now. But I soon discovered that there were drawdown periods that could not be explained simply by fundamental analysis. Often, by the time the fundamentals changed, it was too late to recover much money from my previously successful trade. I soon understood that stocks move in fairly predictable ways, I just could not anticipate the moves. I slowly begun to believe in Technical Analysis, although I believe for a long time, that T.A. was like boodoo or black magic reserved to a few geeks with thick glasses and methodologies that were impossible to reproduce. Mind you, I considered myself then and now an intellectual, although my field of science is not finances or mathematics.
In 1995, Robert Prechter promoted the book “At the Crest of the Tidal Wave” on CNBC, so I got the book and begun to read about the upcoming bear market. I did not believe in Prechter’s premise that you’d go to the 1400’s to start counting the cycles of Elliott wave, and then come up with a relevant forecast for the 1990’s. However, I was hooked by the idea that market movements can be modeled by simple Fibonacci numbers. After all, as a Veterinarian, I know the value of mathematical modeling in the study of biological phenomena. Why couldn’t want predict the movements in the markets based on Fibonacci ratios and numbers? It was worth the exploration. Within weeks, I begun to observe the rallies followed by distinct corrections followed by stronger rallies, etc. that seem to match the Elliott wave analysis. I gain such confidence in my ability to predict the markets and its timing, that I felt I had to take advantage of that knowledge. Options provided me with the leverage I wanted. At a very good time too. In retrospect, buying calls during the biggest bull market in history, was probably an excellent beginning for my trading career.
By the turn of the century, I realized that I would rather buy a few calls in high fliers such as YHOO, AMZN, SUNW, CSCO and ORCL, rather than commit capital in a diversified portfolio. Good thing too. By using options I limited my risk, and when the market begun to collapse, I lost some money, but not nearly as much as I could have lost if I had shares of SUNW, just to name one. But the devastating thing for me is that the bear market from 2000 to 2003 was too hard for me to trade the way I had been trading the bull market, by simply buying options. My approach to trading the stock market was no longer workable. I entered a period of search of an approach that would work the way the Elliott wave combined with call buying had worked during the 90’s. Only by 2005 was I able to trade with confidence. Although I still had a love-hate relationship with the Elliott wave, I had more or less given up on trading substantial amounts of money relying on my Elliott wave counts for forecasting. I used 2, very expensive Elliott wave programs trying to compensate for my lack of decision and clarity about the my analysis. In the end I realized that the counts I was given were so far out of my understanding of Elliott theory that I abandoned them too.
Elliott wave is not simple. It requires much experience to come up with a count one can rely on, and then when you show your count to someone else, you find with dismay that they do not agree with your count and that you cannot agree with theirs either. Nevertheless, I never ceased to contemplate with wonder how in the end, when a pattern is completed, it all makes sense. I believe in the Elliott wave but with one big caveat, there are so many periods of ambiguity during corrective periods, to render the forecasting complete useless. Still, I simply cannot give up my hope to make some sense of the Elliott wave analysis and return to the great profitability of the 1990’s. Perhaps this goal will remain as illusive as the hope of returning to a bull market such as the one in the 1990’s. However, as weeks turn into months and months turn into years, and we approach the end of the first decade since I last reproducibly and routinely got great results from Elliott wave forecasting, I remain, more than ever, a fan of the Elliott wave. Why? because the Elliott wave saved me from losing 50% of my portfolio, like many people did. Following the collapse of the markets in 2000-2003, I understood that this was simply Intermediate wave A of a Primary wave 4. I saw wave B develop and violate every Fibonacci retracement landmark until eventually it exceeded the high of 2000. 
During this period, I did not buy one single stock or bond. I had saved my money in CD’s and traded the PCCRC in what turned out to be a highly profitable period between 2006 and 2008, including what turned out to be my best ever week as a trader, which coincided with the worst week ever in the stock market. My trading was completely independent from Elliott analysis, but I am sure glad I had the understanding of Elliott theory in the back of my mind, because I prohibited myself from investing in the markets, other than with PCCRC’s.
The same way that I believe that the market was topped out in 2007, I believe now that the Primary wave 4 is completed as a FLAT, and that the markets will enter a powerful bull market that will last a decade or so. That is not to say that there won’t be corrective periods, but why not begging to buy SPY (spiders) in small chunks? But I digress. The bottom line for me is that the Elliott wave analysis is elegant, particularly when large patterns are completed, and this is one of those times in history when the pattern has completed.
Persevering with the Elliott wave saved be a fortune, but I also think that it could still make me a great deal of money in my trading. I have found ways to complement my knowledge of Elliott wave to go beyond Fibonacci retracement and support and resistance lines, which are never hit on the dot. I have found methods to better understand when a correction is over. I have also found methodologist that can easily help me to profit during the very ambiguous and frustrating corrective periods, such as the bull run of 2003-2007. For example, in the recent Trader Expo, I attended an engaging seminar by Leslie Jouflas of TradingLiveOnline.com where she explain her AB=CD pattern trading. I found that this was quite similar to the A-B-C corrections of Elliott, and she found a way to profit from the recognition of the patterns. In fact, you can easily find complex corrections such as the double and even triple three defined by Neely in his book Mastering the Elliott wave, that could be easily split into AB=CD series. Take a look at this chart of AAPL, early this year:
I have highlighted in yellow the AB=CD segments, and the in green the strong reversals that took place after the completion on the AB=CD segment. Understanding of Elliott would have simply kept me out of this market, but if I had bought a call or two, my risk would have been low, and the profit could have been good, provided that I had used good money management techniques. In fact, the very last rally, eventually took the stock to recent highs of 140. Understanding of Elliott was good, but learning the AB=CD pattern recognition and trading was powerful. In fact, I could retrospectively look at the period between 2003-2007 and find similar patterns in the up trade, that would have facilitated my trading during a corrective, Elliott-ambiguous period.
My point with this whole story, is that believing and thus persevering is probably more important that trying to find the holly grail of trading from someone else. Without a doubt, however, keeping your eyes open for what others do is probably very helpful. Only recently I have ran across a technical analysis study, which is combination with the Elliott wave analysis can be very predictive of the end of corrective periods. This is a great addition to my knowledge of Elliott theory, that I would be delighted to share with anyone willing to participate in my private group. I am looking forward to having you!
Please Pay it Forward.
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