TECH TRADERS

FROM THE STORE

Testing Exit Strategies
by Jeffrey Owen Katz, PhD, and Donna L. McCormick

Everyone’s looking for entry trading signals, but what about after you’re in the trade? Last time, Katz and McCormick looked at different techniques for making a graceful — and profitable — exit. This time, they’re testing various exit strategies, both separately and in combination, to determine how well they can improve a trading system.

Last time, we discussed the problem of exit strategies. We determined that a good exit strategy is important because failing to exit at the proper time can cost a trader dearly, and we also concluded that a good exit strategy must, above all, strictly control losses while not sacrificing too many potentially profitable trades in the process; at best, it must allow profitable trades to fully mature. If risks can be controlled by quickly exiting from losing trades without killing or cutting short too many winning trades, a losing system might even be turned into a profitable one. Most important, during the inevitable bad periods, a good exit strategy that incorporates solid money management and capital preservation techniques can increase the probability that you will still be around for the next potentially profitable trade ...

FROM THE STORE

Trading Wave 3
by Mircea Dologa, MD

Trading wave 3 could prove to be the most profitable of all waves in Elliott wave analysis. Here’s an example.

In my previous two articles, I discussed various techniques you could apply to trading while a wave 3 was in process. In this, the third and final part of the series, I will walk you through a trade so you can see how to utilize everything I discussed in the first two parts.

GETTING READY

1. Be alert to the possibility of an extended W3 trade
   • Be alert to the possibility of an extended W3 trade
   • Identify the profitable low entry.
   • Price should be near the close of the previous day.
   • Price should gap down, opening below the close, then return above the close and fill the gap from the low of the day/morning, or vice versa. This is known as the oops phenomenon.
   • Price gaps down, consolidates for several bars, then fills the gap from the low of the morning/day. Again, you have the oops phenomenon.
   • Follow the price movement from downtrend to uptrend.
   • Once a low is formed, wait for an upswing in wave 1/A and its retracement of wave 2/B (38.2 – 50%). After the retracement, you can set up for the wave 3/C ride.
   • Be aware that a low may not necessarily be the starting point for wave 1, but rather the end of wave B of an ABC correction. Wave C will follow, taking the form of a terminal-ascending triangle. A similar situation might take place when an impulse pattern has a wave 5 failure. This will be a classic doublebottom formation.
   • Be aware of the formation of w1 of a future W3. It can coincide with the entry (as is the case in the example). The length of the move will give the tone:
     • Five bars for a swing
     • 13 bars for an average trend, and
     • 21–34 bars for an extended wave ...

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