Markets Moving too Fast? Practice Your Technique with a Pop Quiz

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Markets Moving too Fast? Practice Your Technique with a Pop Quiz
Education and preparation are vital to success in fast-moving markets.

By Jill Noble
Mon, 07 Nov 2011 13:30:00 ET

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Do rapid market turns make you feel like a doomed contestant on a Think-Fast game show? You have to be totally prepared and "on your toes" to stay ahead of this unforgiving game. And that means understanding the rules before you get started.

If you're not totally confident in your knowledge of technical analysis and the Wave Principle, there's no time like the present to refine your technique.

This question looks at a weekly bar chart for Cocoa, excerpted from one of Wayne Gorman's sections from our online course: How to Trade in a Fast-Moving Bear Market (a new session starts soon -- details available here>>):

How confident do you feel in your answer, if you have to make a quick choice? The timer is running out…

Here's Wayne's explanation of how to find the correct answer:

Now, choice A is of course wrong -- you do have enough information to make that determination.

Choice B… No -- you can see that wave (3) is already extended. It would be rare to have two extended waves. It's possible that wave (3) and (5) could be extended, but that we only see that at higher degree, and we do not see that often. So that's not what you would expect to happen. That's something that can happen.

Choice C… Well, yeeeeaaaah, it's possible -- but you wouldn't expect that. It's true that after a strong 3rd wave, you might see a truncated wave (5), but your first choice in this situation is to look for wave (5) to equal wave (1), or equal a Fibonacci ratio of .618 times wave (1).

So [option D], no, it's not likely in this situation -- you're not likely to have two extended waves.

The correct answer is E.

Did you answer correctly?

If you still need practice with pattern recognition and counting waves, our seasoned trader-analysts Wayne Gorman and Jeff Kennedy can help -- with interactive exercises, clear instructions, and live feedback in their 8-session online course, How to Trade in a Fast-Moving Bear Market.

Gain more opportunities to review and ask questions about the Wave Principle, in any market, all from the comfort of your home or office. Follow this link to learn more>>

Tags: Bear market, Elliott Wave trading, personal finance, risk management, Traders, trading lessons

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The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading and investing decisions.