Technical Analysis of Stocks: How to Boost Your Earnings with Elliott Wave

“Making money is easy. It is. The difficult thing in life is not making it, it’s keeping it” John McAfee   

One of the greatest desires of man is to make money by anticipating the future. This is perhaps the reason why so many people go to the races, watch football or cricket matches where they try their luck by betting on them. But the most fascinating of all is the financial market, more precisely stock market where one can turn a few thousand dollars into several hundred thousand dollars or more.

And Technical Analysis of stocks is obviously one of the most talked about subject in the stock market today with spreading of internet network that are producing so many millionaires around the world.

There are millions of Google searches on a daily basis about how to make money in stocks. There are tons of books and websites/weblogs you will find online on trading or investing. Despite of this plentiful of resources, most of the traders are still losing their money in the stock market. What they seem to lack is a good trading system that can make them money, a system that does not require deep financial knowledge.

There are basically two major holistic approaches to the schools of studies-1.Fundamental Analysis and 2.Technical Analysis. You may be wondering which one to follow to get the best result in multiplying your money. Both fundamental analyst as well technical analysts claim that their approaches to be the best one.

Fundamental Analysis:

If you read my previous posts that I have uploaded so far, you can easily detect that all are based on fundamental analysis. The fundamental analysis is run just to determine a company’s intrinsic value-whether it is undervalued, overvalued or rightly valued based on its financial statements. Obviously other parameters such as various important financial ratios, monetary policies and managerial ability of the company, global socio-economic, political stability etc are that you need to consider. And fundamental approach is chiefly aimed at for longer-term view.

Technical Analysis of Stocks:

So far I have written several posts on Fundamental Approach. This time I feel an inner urge to write about some of my views on Technical Analysis.

Technical analysis of stocks is an art of studying historical stock price movement and its trend analysis with the help of price chart and its associated thousands of technical indicators/oscillators and so on. The important notion here is that what goes up must come down and what comes down will also go up once again.

Technical analysis works wonder if you’re a short-term to medium-term trader with a trading time frame of a week to 2-3 years duration. Apart from price-chart, volume analysis and important support/resistance and oversold/overbought situation are also studied.

Frequently, it is observed that price of an up-trending stock gets stuck at an important resistance level that it failed to cross and comes down again.  And a falling stock get settle down at a vital support level from where it shows trend reversal with huge volume and buying interest from the market participants.

Technical analysts believe that supports are the levels or oversold situation where cheap accumulation is frequently observed. And while an up-trending stock gives a break-out and get pass an important resistance level with surging volume, it goes further up and reach to a peak. If that happens, it could make you wealthier.

Likewise, you can usually see a major resistance level or overbought point on daily/weekly chart where investors/traders start profit booking heavily and that huge selling pressure with surging volume brings the price of a stock down to an another support level or oversold point where nobody prefer to sell the stock any longer. These levels are those where the probability of further decline is minimal or limited.

Even technical analyst also predicts long-term price target of stocks. In fundamental study, you analyze a company’s sales, profits; its future expansion, the quality of management and other important aspects and work out the right valuation of it’s stock at which you decide to buy it.

But many a times you may not find that stock at that valuation. This is where your technical knowledge helps you find the level at which you buy your favorite stock. This level may be a major support level or major moving average support (say 200 DMA or your favorite ones) on long term price chart-may be the daily or weekly chart.

Although fundamental analysts reject this reasoning, it does happen frequently. Otherwise why a stock with an excellent fundamental background frequently crashes without any strong reason, sometimes it crashes to 30%, 50% or even more from its all time high? If you are not aware of this, please open a price-chart on a free online stock-charts and check it out on your own.

Whatever the ground situation is, I always select fundamentally good stocks with the help of a good stock screener. Then I do my technical analysis of stocks for setting a moderate price target by incorporating some important indicators. And on top of it, I always keep in mind the major support/resistance levels and derive the calculative risks with the help of EWP (Elliott Wave Principal). I found that this approach of technical analysis of stocks to the financial market is one of safest method to get the most accurate results.

It’s true that nobody can predict the market move. In gold market, you’ll often notice that the professional traders tend to use technical analysis gold. However, the market is the supreme. Nobody can predict the market with absolute accuracy. But EWP definitely gives you an edge. Forex market is one of the most complex and volatile trading market where some pro traders heavily count on technical analysis forex. Just watch the below video for witnessing a live example of an India bank stock, State Bank of India (SBIN) and workings of EWP.

The technician, who practices technical analysis of stocks, would seldom recommend you to buy a stock while its price moving down unless a defined support level exists. This phenomenon is technically termed as price correction or pulls back event or retracement. I always look for a sweet spot after preset level of retracement where trend is likely to reverse or where risk-reward ratio is strongly in my favor.

You may call it bottom fishing or value investing. This approach ends up with a high level (nearly 80-90%) of accurate results in multiplying your money if you have enough patience. In the true sense, I am a contrarian trader or investor at a point where nobody is interested to buy a beaten down stock.

In search for a reliable system, most traders give technical analysis a try. Usually they start by studying various books on technical analysis of stocks and learning about different chart formations. Many a time traders/investors get overwhelmed by the hundreds of indicators/oscillators and lost in them. Some find it hard in plotting them on chart and fail to implement the most effective ones.

Though all technical indicators/oscillators are invented by the great scholars and all are having their own significance in the right context. You may find Dow Theory is a unique one in finding the market trend. Japanese Candlestick or Heikin- Ashi are a few of the respected dynamic sorts and widely used among traders worldwide. There are numerous trading systems out there that incorporate so many indicators/oscillators into them. They may be generating profits for you.

But are they truly consistent in producing results? And which are the most reliable ones that you’re going to incorporate in your charting system? You never know how far they’re going to help you in your trading system. And when you plot them in your charting software, they make the chart more complex and look like a cluster of indicators/oscillators where you get confused which one is actually working.

But when it comes to executing the trade ideas, they always seem to be lagging the market. A formation is confirmed only when it is complete, and by then it is too late to do anything meaningful. I am not damning them all. Those are obviously meaningful in their right context and the big problem is we are unable to understand them fully.

Fortunately R.N.Elliott had come out with a discovery of theory way back in 1930 which revealed that crowds tend to behave in a predictable manner. Of all the approaches to technical analysis, nothing works better than the Wave Principle in anticipating a move and can give an extra edge.

What You Need is a TRUE EDGE

If you’re serious traders or investors and want a truly rewarding business, then what you desperately need is an edge in your trading system. Even one of the most successful investor Mr. Charles R. Schwab had introduced a trading system that has an edge. Schwab is the founder of The Charles Schwab Corporation; a U.S. based very reputed bank and brokerage firm. Here EWP (Elliott Wave Principle) is definitely give you that edge in the arsenal of your trading system.

Now, how do EWP traders win? A word of caution, you should not consider EWP as your Holy Grail system; rather it can render you a road-map in broader sense. At least you will be able to find the safer level where you can enter into your favorite stock. And thus you could save a lot of money in buying your stock lately at a more safer Fibonacci support level. As you know, saving money is literally making money.

Many a time, beginner or newbie traders believe that there must exist a system which can guide them in finding the market direction in advance.  Others believe that many of the best traders who made boatload of money have some secret formulas or secret indicators. But naked truth is that those successful traders are just like you and me. What they do have in their arsenal is a system that truly give them an edge.

Elliott wave analysis indeed is one of the successful systems that have proved to be very effective and give you an edge. With the help of Elliott Wave analysis, you can figure out the big picture the market is currently trending. You will be able to determine the broader direction of the market. On top of that, you can also predict how far the current move is likely to travel before a trend reversal happens.

Once you figure out that, you can estimate the next move, that is correction or retracement phase where the market is likely to come.  The pre-determined level where you can take a position that can give you a fruitful risk-reward ratio. EWP can be a highly rewarding trading system if you truly assimilate its principle and implement them properly.

You may be aware that market moves in wavy fashion. What you need here is to count waves with the help of EWP. Oftentimes most of the traders or investors fail to understand the significance of Elliott Principle and the underlying wave counts. Even many of them leave this concept right-away due to its complex nature. But believe me, this is not a rocket science. If you are determined to give it a try, you will definitely be able to learn this technique that can truly give you an edge.

If you Google about Elliott Wave analysis, you can encounter with so many resources and find many books and online courses like Elliott Wave International  that can teach you how to do wave analysis. Believe me, those are expensive resources and on top of it, you may find them really hard to learn anything viable that can help you do your real-time analysis in effective way.

Initially I also did this for the last few years and read many quality books on EWP, but failed to understand it fully. Luckily I came across one amazing book that had changed my whole lot of trading concept. This book is “Five Waves to Financial Freedom: Learn Elliott Wave Analysis”  With this amazing book, you can learn everything you need to with live examples. And I am sure you’re going to love this book when you try it, which can change your trading/investing style completely.

Elliott Wave analysis gives you a great deal of clues frequently about the market and you will indeed find an edge at almost every stage of the move. Even not having a trade is sometimes a sound decision, and Elliott Waves could give you that edge.

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