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The Elliott Wave Theory

The Elliott Wave Theory

The Elliott Wave Theory is a form of technical analysis used to predict market trends. Developed by Ralph Nelson Elliott in the 1930s, it is based on the idea that financial markets move in predictable patterns. These patterns, or waves, are driven by investor psychology and can be identified and analyzed to forecast future market movements.

Origins and Development

Ralph Nelson Elliott, an accountant, discovered the underlying principles of the Elliott Wave Theory during the Great Depression. He observed that stock markets did not move randomly but followed a repetitive cycle. This cycle was influenced by the collective psychology of investors. Elliott’s findings were published in his book “The Wave Principle” in 1938. His work gained recognition after being endorsed by Charles J. Collins, a prominent market analyst.

Basic Principles

The Elliott Wave Theory is built on the concept of waves. According to Elliott, market prices move in a series of five waves in the direction of the main trend, followed by three corrective waves. The five-wave pattern consists of three impulse waves and two corrective waves. Impulse waves move in the direction of the trend, while corrective waves move against it. This 5-3 wave pattern forms the basis of the Elliott Wave Theory.

Wave Patterns

Elliott identified several wave patterns that recur in financial markets. The most basic pattern is the five-wave impulse pattern. This pattern consists of three upward waves (1, 3, and 5) and two downward waves (2 and 4). The three-wave corrective pattern follows the impulse pattern. It consists of two downward waves (A and C) and one upward wave (B). These patterns can occur on various time frames, from minutes to decades.

Fibonacci Relationships

The Elliott Wave Theory incorporates Fibonacci ratios to predict the length and duration of waves. Fibonacci ratios, such as 0.618 and 1.618, are derived from the Fibonacci sequence. Elliott observed that these ratios often appear in the wave patterns. For example, wave 3 is often 1.618 times the length of wave 1. Similarly, wave 5 is often equal to wave 1. These relationships help traders identify potential turning points in the market.

Practical Application

Traders use the Elliott Wave Theory to identify potential entry and exit points in the market. By analyzing wave patterns, traders can predict the direction of the market and make informed decisions. The theory is often used in conjunction with other technical analysis tools, such as moving averages and trend lines. This combination provides a more comprehensive view of the market.

Criticisms and Limitations

Despite its popularity, the Elliott Wave Theory has its critics. Some argue that the theory is too subjective and relies heavily on the analyst’s interpretation. The identification of wave patterns can be challenging, especially in real-time trading. Additionally, the theory does not account for external factors, such as economic news or geopolitical events, which can influence market movements.

Modern Developments

Since its inception, the Elliott Wave Theory has evolved. Modern analysts have developed new techniques and tools to enhance its accuracy. Software programs now assist traders in identifying wave patterns and calculating Fibonacci ratios. These advancements have made the Elliott Wave Theory more accessible to a broader audience.

Conclusion

The Elliott Wave Theory remains a valuable tool for traders and analysts. Its ability to predict market trends based on investor psychology sets it apart from other forms of technical analysis. While it has its limitations, the theory’s principles continue to be relevant in today’s financial markets. By understanding and applying the Elliott Wave Theory, traders can gain a deeper insight into market dynamics and improve their trading strategies.

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Heiken Ashi Charts Explained

In the world of trading, clarity and precision are paramount. Heiken Ashi charts, a Japanese technique, offer just that. These charts are a variant of the traditional candlestick charts and are prized for their ability to filter market noise. Let’s embark on a journey to understand them and how they can be a trader’s ally in the tumultuous seas of the stock market.

The Genesis

The term ‘Heiken Ashi’ means ‘average bar’ in Japanese. Developed to provide a clearer picture of market trends, these charts use average price data to create a smoother visual representation. This smoothing process helps traders identify the strength of trends and potential reversals with greater ease.

Anatomy of Heiken Ashi Candles

Unlike traditional candlesticks, each Heiken Ashi candle is calculated using a combination of current and past price data. The formulas for these candles are as follows:

  • Open: The midpoint of the previous candle (Open+Close)/2
  • Close: The average of the current period’s Open, Close, High, and Low (O+C+H+L)/4
  • High: The maximum of the current period’s High, or the current Open or Close
  • Low: The minimum of the current period’s Low, or the current Open or Close

These calculations result in candles that reflect the average price movements, smoothing out erratic fluctuations.

Interpreting the Candles

Heiken Ashi charts are particularly useful for identifying market trends. A series of green candles, with no lower shadows, indicates a strong uptrend. Conversely, red candles with no upper shadows suggest a strong downtrend. Traders watch for changes in candle color and the appearance of shadows to anticipate trend reversals.

The Strengths of Heiken Ashi

The primary advantage of Heiken Ashi charts is their simplicity. They transform erratic price movements into a smoother line, making it easier to spot trends. This can be particularly helpful in volatile markets, where traditional candlestick patterns may be obscured by price gaps and extreme movements.

The Limitations

While Heiken Ashi charts are powerful, they are not without limitations. Because they are based on average prices, there can be a lag in the representation of price movements. This means that swift market reversals might not be immediately apparent. Traders must use these charts in conjunction with other indicators to confirm trends and reversals.

Heiken Ashi in Practice

To effectively use them charts, traders should integrate them into their existing trading strategy. They work well with momentum indicators like the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD). By combining these tools, traders can validate the signals.

Conclusion

Heiken Ashi charts are a valuable tool for traders seeking to reduce market noise and gain a clearer view of trends. While they should not be used in isolation, when combined with other indicators, they can provide a robust framework for making informed trading decisions. As with any trading tool, practice and experience are key to mastering this kind of chart.

In the dynamic dance of the markets, Heiken Ashi charts serve as a guiding light, helping traders navigate through the fog of price volatility. Embrace the simplicity and clarity they offer, and you may find your trading moves to a more harmonious rhythm.

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What are Bull Traps and how to Avoid Them

For any trader with experience, bull traps are the worst. One minute, a stock could be rallying after a breakout. Then stops are suddenly hit only a couple of hours later as prices plunge downwards. Bull traps happen pretty frequently. It’s a part of the reality that traders have to face.

For traders who haven’t encountered this annoying market behavior yet, it would surely pay to learn more about it. Let’s dive into what exactly bull traps are and the countermeasures we can take!

Bull Traps

A bull trap is often known as a “false signal” in the market. As the name suggests, they often trap buyers – forcing them to close their positions as their cut loss points are hit. Bull traps can take many forms. Bull traps commonly appear as false breakouts. However, they can also come in the form of reversals that fail. Generally, you can identify bull traps when you see bullish technical patterns that appear to be working, only to fail in the following candlesticks. 

SPX counter-trend rally bull trap

A recent bull trap that occurred was in one of the U.S. stock market indices, the S&P 500. The gist of this was that everyone thought the inflation-interest rates fiasco was over. Players in the market assumed the Fed already turned dovish. As enthusiasm filled wall street, stock prices rallied. The general 4,200 level was the major resistance to break. Although prices broke past, the breakout immediately failed in the following week. As prices failed to hold, this only proved that the breakout was but a mere bull trap.

Bitcoin intra-day bull-trap

Just recently, Bitcoin also staged a rally. While the trend is still intact, prices created a bull trap scenario for intra-day traders. 21,800 was proving to be a resistance point that needs to be broken. Prices suddenly surged past the level, only to fall back quickly in a matter of hours. Again, the move trapped breakout buyers.

ACEX ongoing retest

This one is still an ongoing case. Will $ACEX hold above its resistance-turned support, or will it become a bull trap? Again, prices broke out of a major resistance level (17.00). Currently, prices are still retesting the level. If 17.00 fails to hold, the move can then be labeled as a bull trap. However, as the level still holds we can’t determine yet if the move was only a sucker play, or if it still has short-term potential.

The market psychology behind bull traps

As always, we need to understand the market dynamics behind certain behaviors. For shortable markets, these moves happen when bears start to take control. Since breakout strategies are already common, advanced market participants take advantage of creating false breakouts in order to get better prices for shorting. They are also able to short a bigger amount as breakout buyers put more liquidity into the market. 

For long-only markets, bull traps often take place during bearish environments. There will always be outliers in every market. However, not all breakouts tend to stay strong. Traders who are aware of this often make the adjustment of selling early into the breakout. While most retailers are still buying in hopes of a jackpot, seasoned veterans are already selling. In effect, this creates bull traps.

How do you avoid bull traps?

This begs the question, how do you avoid bull traps? Like all other losses, it’s impossible to fully avoid all bull traps. Breakout strategies are still strong tactics that can be used in trading the markets. Although not all can be avoided, you can take extra precautions or certain adjustments to avoid getting caught all the time

Look at the macro view of the market

As mentioned, bull traps often happen when the overall environment is bearish or when bears are in control. Hence, it would make sense to look at the bird’s eye view of the market. For example, if the index of the market you are trading is bearish, you can expect bull traps to happen more frequently. From there you can start to look at how you can make adjustments.

Selling quickly into strength

If you already know that the broad market has turned bearish, adjustments need to be made. There is a wide variety of tactics that can be employed. Selling into strength is one of the simplest, yet effective ways to avoid bull traps. Rather than trying to follow an uptrend, you can opt to sell profits quickly after a breakout. This entails lower risk-to-reward ratios, so you have to tweak your strategy to suit your style of trading better.

Buying tranches at support

As rallies are more short-lived in bearish environments, shifting tranches bought closer to support levels can be a viable adjustment. This will also let you get better risk-to-reward ratios if you choose to sell into strength after breakouts. However, keep in mind that you are also exposing yourself to the risk of breakdowns. 

Finding the right strategy

There are limitless variations in how you can adjust the way you trade. What was mentioned above are only just examples of adjustments you can make. As different market conditions demand different needs, you need to be flexible. This is where experience and preparation come in. Through being consistent with doing the hard work, such as studying your trading journals and reflecting on charts, the better you will be at anticipating possibilities and adjusting your strategies in your own unique way.

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Featured Trader of the Week: @CharlesRN

Congratulations to @CharlesRN for being the featured trader of the week! 

Sami Abusad once stated “Are you willing to lose money on a trade? If not, then don’t take it. You can only win if you’re not afraid to lose. And you can only do that if you truly accept the risks in front of you.” In the case of @CharlesRN, he believes that in the long-term value of his picks, and patience played a vital role for his trades.

@CharlesRN has been sharing his thoughts consistently in the Investa community. @CharlesRN has been a member of the Investagrams community since Sep 2017 and has been very active recently. 

A couple of weeks ago, our featured trader posted his technical analysis on $RRHI, a hot stock in the local market. $RRHI recently broke its resistance at the 50-51 area.

As the stock recently reached a 52-wk low last June 24. @CharlesRN charted its support, volume,  resistance,  MA, and RSI on the chart, bound for a breakout in its trendline as he believes in its technical analysis. @CharlesRN felt an opportunity to have a good entry near the support and HOLD for a while.

TECHNICALS OF THE TRADE

Technically, the $RRHI broke its trendline at 50-51 area. Thus, the stock recently reached 57ish area and retesting at support in 53ish area. After breaking out at the 50-51 level, RRHI’s volume surges along with its RSI. On the other hand, others are falling and consolidating. RRHI is showing strength in terms of volume as it continues to retest after breaking out the trendline area. It came from a 52-wk low of 45.95ish before surging and breaking the 50-51 trendline area and resistance. There could be a retest in the next few weeks in RRHI for this stock to retest its resistance and support. Technically speaking next resistance of RRHI  is the 58 levels onwards. Furthermore, RRHI will retest whether it will surge more or be back at the bearish side.

@CharlesRN was confident that this stock would retest its support and resistance. He also charted that RRHI will go up as he indicated in his TA the supports, resistances, MA, Volume, and the RSI. He charted a good entry near the support and possible resistance. He is also observing the movement of RRHI. Further to that, he is planning his trades carefully. 

FUNDAMENTAL CATALYST

RRHI takes the spotlight in the local stock market, and recently broke its downtrend line at 50-51 area. Robinsons Retail Holdings Incorporated is a retailing company engaged in supermarkets, department stores, convenience stores, drug stores, appliances and electronics, beauty, mass merchandise, and e-commerce. RRHI are founded and led by the Gokongwei Group. A prominent family and billionaires engaged in almost all of the industries in the Philippines and Internationally. Furthermore, $RRHI has been a trend recently, and the volume from the locals and foreigners is increasing. In addition, $RRHI recently has a buy-back program. It is still unknown whether $RRHI will rise further or fall back down. Thus, it is best to observe $RRHI and plan a good entry. In addition, the Philippine Economy is expected to keep on growing moving forward as the Philippine Government has announced there will be no more lockdowns.

WHAT SHOULD BE MY NEXT MOVE

As the stock recently breakout from the 50-51ish area, it would be wiser to observe and wait for what $RRHI might do next before jumping in. This stock is wise for long-term holding since the services industry could be a top industry pick. The demand from consumers is continually growing. However, it’s best to wait for a consolidation, pullback, or a good entry near its support for a better risk-to-reward ratio. It would also be advisable to trade lightly and in tranches given that we’re not yet out of the woods.

Once again, KUDOS to @CharlesRN for being this week’s featured trader!

To show our appreciation, you will be given a 14-day InvestaPrime Access which will be granted to you by the end of the month and you will be advised by our Customer Service Team once it’s ready in your account. We hope this inspires you to continue to be an inspiration to the trading community!

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Featured Trader of the Week: @RomeTroy

Congratulations to @rometroy for being the featured trader of the week! Warren Buffet once said “Invest in companies you believe in.” In the case of @rometroy, he believes that his stock picks are not for short-term trading but a long-term HOLDING that will be profitable in the long run. 

@rometroy has been sharing his thoughts to the Investa community ever since 2015! He’s also a popular trader in the community as he has over 4000 followers.

A week ago, our featured trader posted his analysis on $SSP, a hot stock in the local market. $SSP recently reached a 52-wk high at 1.56 and closed at 1.5 on July 20, 2022!

As the stock recently surged through a reversal trend, @rometroy charted its support, resistance,  MA, EMA, and RSI on the chart, bound for a breakout as he believes in its fundamentals. @rometroy felt an opportunity to have a good entry near the support and HOLD for a while.

TECHNICALS OF THE TRADE

Technically, the $SSP reached a 52-wk high recently at 1.56 and is bound for consolidation or breakdown. After breaking out at the 1.18 level, SSP’s volume surges along with its RSI. The MA crosses the long-term length of 200. On the other hand, others are falling and consolidating. SSP is showing strength in terms of volume as it continues to consolidate after breaking out at 1.18ish. It came from a 52-wk low at the 0.92 area before surging and breaking the 1.18ish area. There could be a retest in the next few weeks in SSP. Technically speaking next resistance of SSP could face is the 1.6 level onwards. Furthermore, SSP will retest whether it will surge more or will be back being more bearish.

@rometroy was confident that prices would go up as he indicated in his chart the supports, resistances, MA, EMA, and the RSI. He charted a good entry near the support and possible resistance. He will also hold the SSP for awhile while planning for a take-profit price and his trades. 

FUNDAMENTAL CATALYST

SSP takes the spotlight in the local stock market, reaching a 52-wk high of 1.56 and closing at 1.5 on July 20, 2022! SFA Semicon Philippines Corporation is a semiconductor company that supplies Samsung Korea. SSPs are engaged in the assembly and test of memory chips and devices for computers, laptops, and servers, as well as micro SD cards for mobile phones. 

Furthermore, $SSP has been a trend recently, and the volume from the locals and foreigners is increasing. In addition, $SSP recently has a buy-back program which could be an indicator for a BUY SIGNAL. It is still unknown whether $SSP will push further or be back on track on the bearish side. Thus, it is best to observe $SSP and plan a good entry. In addition to that, semiconductors are facing higher demand. Thus, in terms of global, semiconductor chips are having shortages. Further to that, it is best to consider the market sentiment. In addition, consider the technical indicators and the financial statements as they are vital parts of the stock.

WHAT SHOULD BE MY NEXT MOVE

As the stock recently breakout from the 1.18ish area, it would be wiser to observe and wait for what $SSP might do next before riding in. In addition, this stock is wise for long-term holding since semiconductor stocks are increasing yearly. The demand from consumers is continuously surging in terms of data. However, it is still unsure whether $SSP will continue to go up, so it’s best to wait for a consolidation, pullback, or a good entry near its support for a better risk-to-reward trade. In addition, it is best to have alternative stock picks that are more profitable and good to trade alternatives like bottom picking stocks or stocks that could surge due to global demand or sectors that could be more profitable.  Furthermore, it would be advisable to trade lightly and in tranches.

Once again, KUDOS to @rometroy for being this week’s featured trader! Enjoy your 14-day InvestaPrime Access and continue to be an inspiration to the trading community.

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Featured Trader of the Week: @themidastouch

Let’s give a round of applause to @themidastouch for being this week’s Featured Trader! 

@themidastouch has been a member of the Investagrams community since June 2020 and has been very active recently, he is always sharing his thoughts and his trades.

A few days ago, our featured trader posted his technical analysis on $ICT, a hot stock in the local market. $ICT has been on an uptrend and recently reached 52-wk highs at 236.6 ish!

As the stock is on an uptrend, @themidastouch predicted its support, resistance, and trendline on the chart that were bound for buy low, sell high play. @themidastouch felt that this was an opportunity to make a profit by considering technical indicators such as S&R.

TECHNICALS OF THE TRADE

Technically speaking, $ICT has proven to be a strong stock in the Philippine Stock market (A part of the PSEi). While others are falling, $ICT is showing strength as it continues to move upwards strongly. It came from a breakout at the 130 area before surging to 230 area onwards. There was also a retest in the 176 area as ICT recently reached a 52-wk high at 230 area. Furthermore, ICT will retest whether it will continue its trend or this could be a sign of reversal.

@themidastouch was confident that prices will further go up as he indicated in his chart the supports, resistances, and the trendline. He found a good entry for a buy low, sell high play while considering the technical indicators mentioned.

FUNDAMENTAL CATALYST

International Container Terminal Services, Inc. is a port management company. Historically operating the Manila International Container Terminal, ICTSI is now in the business of acquiring, developing, managing, and operating container ports and terminals worldwide. Thus, $ICT has been on an uptrend while the demand from traders and investors is strong enough to push the price upwards. It is still unknown whether $ICT will continue its trend or not. Thus, it is best to observe $ICT while considering the sentiment of the market, as well as the technical indicators and the financial statement.

WHAT SHOULD BE MY NEXT MOVE

As the stock recently reached a 52-wk high, it would be wiser to observe and wait for what $ICT might do next before riding in. It is still unsure whether $ICT will continue to rise, so it’s best to wait for a consolidation or a good entry near its support for a better risk-to-reward trade. In addition, it is best to have alternative stock picks that are more profitable and good to trade.  Furthermore, it would be advisable to trade lightly and in tranches.

Once again, KUDOS to @themidastouch for being this week’s featured trader! Enjoy your 14-day InvestaPrime Access and continue to be an inspiration to the trading community.

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Featured Trader of the Week: @tobi_

Let’s give a round of applause to @tobi_ for being this week’s Featured Trader! 

@tobi_ has been a member of the Investagrams community since Oct 2021 and has been very active as he has already posted a couple of times, always sharing his thoughts on views on some of his trades.

A few days ago, our featured trader posted his technical analysis in WEB. A hot stock in the local market recently, WEB has been on an uptrend and recently making new 52-wk highs! 

As the stock was going up in uptrend, @Tobi_ looked for its support, as well as predicting ascending triangles on the chart that were bound for the breakout. @Tobi_ felt that this was a momentum stock for him to play. With that being said, he also considered the RSI pattern.

TECHNICALS OF THE TRADE

Technically speaking, WEB has proven to be a strong outlier in the Philippine Stock market. While others are falling and, on a consolidation, WEB has shown strength as it continues to move upwards strongly. It came from a breakout at 2.37 area before it surges to 4 level. Recently, there was a surge in the volume as WEB became more attractive to consumers. The stock recently reached its 52-week high at 4.74. 

@Tobi_ is confident that prices will continue to rise as he predicted it is a good entry for a momentum play. Furthermore, there is great demand from the locals and foreigners.

FUNDAMENTAL CATALYST

PhilWeb Corporation is one of the leading gaming technology providers in the Asia Pacific Region as well being known for its diverse businesses. Despite the low net income, WEB has been speculative to the traders and investors. WEB is still unstable whether it will continue its trend or a speculative stock that is bound for another surge or dump. Further to that, it is best to observe the WEB and with consideration of the PSEi and the global market as it will rely on these stocks. 

WHAT SHOULD BE MY NEXT MOVE

As the move has already happened, it would be wiser to observe and wait for what WEB might do next before buying in or riding-in with the wave of the stock. It is still unsure whether WEB will continue to rise or to follow its trend, so it’s best to wait for a consolidation or wait for a good entry near its support. Further to that, it would be advisable to trade lightly and in tranches in order to be cautious about your trades especially that the market is unstable and PSE is still relying on the global market, as well as news. 

Once again, KUDOS to @tobi_ for being this week’s featured trader! Enjoy your 14-day InvestaPrime Access and continue to be an inspiration to the trading community.

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