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Trading Elliott Waves Live: QQQ and NVDA

Ex-Wall Street trader on the rationale for closing a trade

by Vadim Pokhlebkin
Updated: June 04, 2018

Todd Gordon's resume includes two Wall Street firms and a long record of trading his own money. Today, Todd is the founder of TradingAnalysis.com and a regular contributor to CNBC shows like "Fast Money" and "Squawk on the Street."

On May 10, we sat down with him in our ElliottWaveTV studio to learn more about his very transparent, Elliott wave-based trading style.

In this clip: Examining Elliott wave patterns in QQQ and NVDA to see if the trades are ripe for harvesting

Vadim: Speaking of today's markets, stocks have been rallying for the past few days. Is there anything you're watching in terms of Elliott Wave count?

Todd: There is. It's so funny, I just arrived at the Elliott Wave international offices and the guys printed off my short term forecast right here. I realized that the guys changed the wave count. There's an update in it. I am long the NASDAQ right now. I'm long the NASDAQ via a QQQ put spread and I'm long NVIDIA via a put spread as well. I'm looking at what the guys have put out there. I have a slightly different wave count. I'm saying both of these, what we have here, both could work. What's interesting is both have resistance just above us. I think it's time to look at these two different wave counts that both predicted the market to move higher, both are predicting resistance and I think we need to manage these trades.

Vadim: Speaking of opportunities, this is what you're looking at right now.

Todd: This is the NASDAQ. This is the QQQ on a 195 minute chart, I like that. If you take the stock market day, 360 minutes and divide it by two so it's just a half-day bar. I was looking at this as a possible triangle. I'll just move the cursor over here. Wave three ended way up here in that orange circle three. 2018 has been mostly a triangle. We've ended the triangle here in E of four. Nice little move up. Then we just did a little ABC pull back in wave two. With our subscribers, we did get long the NASDAQ via the Qs a put spread, and we also have a NVIDIA trade on that we have to match. We've moved up in wave three. This right here, let me just get this out of the way this little white label. The 100 percent is the minimum expected distance of a wave three, right? So that's six, eight, six, seven. We're through that. You know as well as anyone that once you're through that 100 percent, possibly that we're into the wave three. We're not quite to this 161 percent relationship of wave one compared to three but we're certainly within the realm of this is where we should start to manage and expect a wave four. This is a bullish count. Another possible interpretation is of this count, which again, I just want to drive this point home. Pretty much from about 6500 in the NASDAQ up, we're expected to go higher. There's another wave count that we are tracking, which does as we know, bring the possibility that the wave three of multiple degrees, actually wave five of multiples degrees into a wave three top here in March took place. We then saw the decline in wave one. What's happened is we did an ABC rally up. That could've been the end of a zigzag. We had the opportunity to break down in an impulsive matter but it didn't. The market wanted to correct and take up more time on the clock, which that's how complex corrections unfold. Everything from here over doesn't change the fact that you had a nice little five wave move when you get down to a smaller timeframe into an ABC correction. You've got to buy that. You've got to be long that. B wave completed and then we've got a beautiful move up here as expected. The count that says longer term bullish was expecting a short-term move. This count, which says we are in trouble longer term, in this short-term timeframe, had room to move up. Looking at this wave count, beautiful parallel channel, right? Connect those lows, project off the high, right into resistance. This is the 78.6 percent retracement of that blue one decline. There's a lot of resistance here. Both wave counts said we should've moved up and both wave counts, this one suggesting a little bit more strongly that it's time to exit. I feel like we have to manage these trades. Take the winners off when you can, not when you have to.

Vadim: Do you think it's an actionable situation right now or would you wait to see how this unfolds further?

Todd: I structured this in the options market. We sold put spreads in Nvidia and the NASDAQ. That's what's really nice, when you have an ABC structure like this, the market volatility is going to kick up. Implied volatility is going to kick up when the market is trying to push lows. You use that opportunity to sell that expensive volatility. Volatility has now come out of the market. We have good profits in the trade. There's not much more to go. We might as well take the trade off, book the profits, protect. The reason that we went in was to be directional, number one and two, take advantage of overbought implied volatility, which is going to come out on this rally. Again, let me just say, I trade live, I've traded for my entire 18, 19 year career. I put on winning trades and I put on losing trades. That is the most important thing to say. A real trader talks about his losers and his winners. You've got to work on constantly managing your losers and your winners. We have two winning trades on right here. I think it's time to work on this. On this account, let's work on this QQQ position. Actually, yeah, yeah. This guy, we're up pretty good here. This trade's up just over a thousand dollars real money. The actual trade, we sold it for, let me just go like this. Create closing order, we're going to buy this spread for 55 cents. We wound up selling this QQQ spread for I think a dollar 50. It's dropped in value, which is good 'cause we're short. We're going to go ahead and buy that back. Right now, we can pay about 54 cents on that. I'm going to take half profits. I'm not going to take it all off the table. Of my ten options that I have on, I'm going to buy five back. Right now, I can pay about 55 cents. Just waiting for that fill. Cancel replace. No, working. Sometimes, you have to negotiate with the options market makers here. Let's change our price. Cancel replace, let's go up. They want me to pay 56 cents. Fine, you get your way. That trade is now filled. We just booked half profits on that trade. The other one that is doing very well is Nvidia, very similar looking pattern to the NASDAQ. NVIDIA is a similar triangle, I think to what we were looking at in the NASDAQ but much more progressed. This guy right here, this was the equivalent to that ABC pullback in the NASDAQ. Very shallow pullback here. There was a lot of relative strength. As we get off the daily, down to the 195, just a really nice little shallow wave two. If I were to just draw that out, and just go, there's one, there's two, there's three, and just come up with the typical wave three resistance, you're going to see that we're pretty well extended in that wave three. We're already at the 161 percent relationship, which you know that's typical for a wave three.

Vadim: Right.

Todd: These options expire today. These are much shorter term options. It's just time to just lock in the profits on this. NVIDIA, we sold at 227. 225 put spread. We sold the 227 puts, bought the 222 puts. Right now, I think we can buy 'em back for a couple pennies after selling them. Create closing order. I can buy the whole spread back for 12 cents. That's just like selling a stock at a buck and buying it as 12 cents. That's that. Couple trades and I guess the point that we're trying to make is I think the wave count that I was operating on was wrong. But both of 'em wound up saying the market should move higher.

Vadim: In the short term.

Todd: In the short term and I think it's time to now look the other way. You don't need to know exactly what the wave count is in order to make money trading. You can have multiple possibilities. In this case, my primary possibility was wrong. I think the alternate now is going to become a reality. It's time to look the other way.

Editor's note: In the full version of this interview, you'll see Todd Gordon explain why technical analysis still works in the age of AI; examining Elliott wave patterns in QQQ and NVDA to see if the trades are ripe for harvesting, and much more. Follow the fast, free steps below to watch the full interview.

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