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(VIDEO) A Tip from an Analyst: Get to Know Your Market's Personality
Here's how EWI's Jeffrey Kennedy suggests you get more from the markets you follow
By Susan C. Walker
Fri, 20 Jul 2012 13:00:00 ET
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Remember your high school math class, when your teacher would say, "OK, show me how to do this problem." Suddenly, though, while standing at the blackboard, your mind would go blank: It didn't matter that you had done the same kind of problem for homework the night before.
Studying price charts can be similarly daunting. You know that you're looking for Elliott wave patterns; you know what they look like; you know how to count them. But faced with a new chart, suddenly your mind goes blank.
That's when it's time to say, "Teacher, would you please show me again how to do it?"
For those of you who like to trade using Elliott wave analysis, Jeffrey Kennedy is your teacher and his classroom is Elliott Wave Junctures, our new educational video service that helps you see the patterns on the price charts of the markets you follow. Here's a sample of his video lesson, "Market Personality," from June 5, 2012. We have included not only the video lesson itself but also an edited version of the lesson.
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Elliott Wave Junctures video lesson, given by Jeffrey Kennedy on June 5, 2012
Market Personality
Financial markets are as different as people. Just as likes and dislikes vary from person to person -- some like hamburgers, some like health food -- financial markets exhibit their own distinct personalities by favoring certain wave patterns over others. In this episode of Elliott Wave Junctures, I’ll illustrate this point in Direct TV's price charts.
About 15 years ago, when I was on the European Intraday desk at Elliott Wave International, a recurring pattern in the Italian Bond caught my eye. I began to notice that leading diagonals would often occur in the wave 1 position. It seemed to be a unique characteristic of the Italian Bond. Over the years, I have come to believe that each financial market – every stock, every bond, every price chart – has its own personality. So, if you’re going to trade a specific market, I encourage you to spend some time with it and learn its personality before you start trading it.

A good example of precisely this kind of market personality comes from Direct TV's price chart (ticker symbol DTV). In Elliott wave analysis, there are three types of triangles: contracting, barrier, and expanding. While contracting triangles are fairly common, the expanding triangle is actually a rare pattern that forms less than 10% -- maybe even less than 5% -- of the time.

But if you look at this one stock's price charts, you will see a strong tendency for the expanding triangle to form. For example, the weekly price chart shows a very nice expanding triangle -- waves a, b, c, d, and e -- along with the thrust following that triangle.

View the video lesson, "Market Personality," now:

One also shows up on the daily price chart:

... and another expanding triangle even shows up on the 10-minute chart:

What's surprising is that as rare as expanding triangles are, it’s not that difficult to find three really good examples of this pattern on DTV's intraday, daily and weekly charts even though you might not see this pattern at all in any of the other markets you follow. That's part of DTV's personality.

Good questions to ask yourself about other markets then might be: What are some tendencies of this market? Does the same pattern recur? You may find that flat corrections show up more frequently than zigzag corrections in one of your markets, or that .786 retracements are more common than .618 retracements. If you like to trade bonds on the daily level, what are some of the quirks, the likes or dislikes of the particular bonds you trade? Maybe you have a price chart of, say, Google, and you notice that whenever the market gaps, you see a strong tendency for the market to try to go back and close the gap. Notice that and remember it the next time you see a price gap.
The more you know your market's patterns and rhythms, the easier it will be for you to set up for a high-confidence trade, because when you recognize a wave pattern, you know where you are, and you often know what comes next. If you spend time with the price charts of your markets, you’ll find that there’s a rhythm to each market. The more time you spend with that market, the more in sync you will be with its rhythm, which I think will give you more confidence in your analysis and trading.
It's one thing to act on someone else's trading ideas. But it's a whole new experience to recognize and act on your own trading opportunities. That's what Elliott Wave Junctures will help you to do -- you will get the education and the confidence you need to start finding opportunities on your own price charts.
Elliott Wave Junctures gives you:
  • 3-5 video trading lessons each week
  • Lessons that you can apply across any market and any time frame
  • A teacher who will become your trading mentor
Free Bonus Courses: You also get 3 of EWI's popular educational trading products free as part of your welcome resources (Valued at more than $200)
PLUS, when you subscribe today, you get INSTANT ONLINE ACCESS to more than 20 unique video trading lessons in Elliott Wave Junctures' video library archives.

 

Tags: elliott wave junctures, Elliott Wave trading, Jeffrey Kennedy, trading lessons
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