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Trading in Range-Bound Markets
11/18/2007 12:00 am EST
Todd Gordon gave traders an in-depth look at his trading methodology using Elliott Wave Theory and Fibonacci numbers.
Todd spoke about how he used the two strategies—coupled with psychology and observing patterns—to analyze the market.
He stated that the fundamental concept of Elliott Wave Theory and trend identification is that there should be no overlap of trend waves; they should be separate.
In trading foreign currencies, he has found that in the last 30-40 years, the dollar against the Euro or Deutsche Mark has been in a range-bound market, yet there have been many end-of-year breakouts which have offered trading opportunities.
Todd noted that his analysis is a process of narrowing down the market to tradable time frames. He told attendees that his previous life was as an equities trader where trading was very fast-paced, but in foreign exchange, he found it necessary to slow down the process, due to the 24-hour markets.
Todd gave traders a handful of suggestions to maximize their trading success:
- Write down your plan so that you are accountable
- Trade what you know
- Don’t hold your losers too long, hoping to recoup your losses
- Don’t trade too small when you get scared; you will pass up good opportunities
He stated that three-quarters of the time, markets are correcting, and they trend just one-quarter of the time.
Todd moved onto a comprehensive discussion of Elliott Wave Theory, noting that Elliott Wave analysis gives you a way to quantify how long a pattern should last. It is fractal; every market movement can be broken down into 13 patterns, and there are eight variations of corrections to trends.
He commented that corrections usually come in three waves and that usually five wave moves are in the direction of a trend. After five up, you might expect three down. Wave 3 is one of the most powerful moves, as the shorts are usually covering.
Todd said the use of Elliott Wave Theory would allow traders to get in and out at highly emotional and explosive market points in order to maximize limit target and minimize stop loss risk.
He then spoke about Fibonacci retracements, defining a retracement as how far a correction will last before a trend emerges.
Todd closed his session by demonstrating a variety of trades using Elliott Wave and Fibonacci, giving traders some ideas to take home and practice.
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