Any market forecast is just that – a forecast. Be it Ben Bernanke's testimony before Congress, or CNBC's anchors interviewing floor traders on Squawk Box, or a technical reading of a commodities' market chart – a forecast is just a forecast.
It's a truism all right – but one that bears repeating. All too many traders fall into the trap of thinking that what has been proposed as a market's most likely path must indeed be the path, forever and ever, amen.
If only it were that easy.
Markets love to surprise and disappoint. What was a bulletproof forecast yesterday is just another failed opinion tomorrow. So, what's the point of forecasting, then?
Think of it this way. The future holds an untold number of probabilities. Based on your forecasting method and experience, when you select one or two of those, you have narrowed down the infinite choices to something you can actually work with as a trader.
But what about uncertainty?
Uncertainty remains, even with one or two choices. Fortunately, there are methods that allow you to establish "circuit breakers" – also known as "protective stops" in the business of trading – which, if all else fails, will get you out of your position.
Elliott wave is such a method. The Wave Principle operates on three main Rules and a handful of guidelines for wave formation. Rules are "set in stone;" guidelines are not. In other words, if a Rule gets broken, watch out; here they are:
Rule #1: Wave 2 never corrects more than 100% of wave 1.
Rule #2: Wave 3 is never the shortest among waves 1 and 5.
Rule #3: Wave 4 never ends in the price territory of wave 1.
Follow these rules precisely, and they will greatly help your risk management. For example, last Friday in his Weekly Wrap-Up Video Highlight, editor of Elliott Wave International's Daily Futures Junctures Jeffrey Kennedy pointed out to subscribers how important 1392 price level was in Soybean futures. Why? Because 1392 was the top of wave 1 in the rally from the January low. Meaning, that as long as prices stayed above 1392, the market was still likely to move higher.
On Monday (Mar. 10) though, Soybeans fell below 1392, thus creating an overlap between waves 4 and 1. Luckily, you had Elliott's Rule #3 to fall back on: "Wave 4 never ends in the price territory of wave 1," so you knew exactly where your operative wave count would be wrong.
So did Jeffrey Kennedy. And in tonight's Daily Futures Junctures (Mar. 10), he tells you exactly what this latest development means for Soybeans futures – in text, charts, and even a 4-minute video. Get it all on your screen in seconds – look below to see how.