Every investor is required to think carefully plus act smartly, irrespective of the instrument he is trading in. Today, smart thinking is highly needed for an understanding of the trading trend plus taking decisions according to that. Stock market investing is viewed as the hottest choice available, and it has become prevalent among the investors from all across the globe. If your interest lies in the stock market, then you are needed to be equipped with a sharp vision to observe plus understand the trends of the stock market. When you get acquainted with the patterns of the market, then you would be able to trade successfully plus receive excellent returns on your investments.
For understanding stock trading well, you must have a precise understanding of the profits and losses, and if you have got knowledge of these things, then you have won half the battle. Having a clear understanding of the gains and losses in stock trading will turn you into a successful trader, and investor and a smart investor habitually thinks positive and avoids getting stuck in the myths. Additionally, he will be able to take the right decisions and that too at the right time. This is the reason; it is highly essential to analyze the ways through which you can prevent the losses plus earn profits in stock trading.
The Elliott Wave Theory
Ralph Nelson developed the Elliott Wave Theory during the 1920s. Nelson discovered that financial markets have got movement characteristics which get repeated again and again and these movements are recognized as waves. So Wave theory is a complex and broad topic, and practitioners take years to master this theory. However, in spite of its complexities, Wave trading method can be incorporated quickly, and it might help in improving analysis skills plus trade timing.
The smart tricks
- Corrective and Impulsive waves – Prices tend to move in corrective and impulsive waves and to get proper knowledge of the recent waves; you can forecast the prices. An impulse wave is considered a significant price move, and it is linked to trends. These waves propose an improved chance of making a huge profit compared to the corrective waves. Corrective waves are used for entering into a trend trade for capturing the subsequent most significant impulse wave.
- Trend and pullback structures of prices – Nelson discovered that an uptrend is underway when it has got three substantial upward price moves which are interspersed with a couple of corrections. This develops a five-wave pattern, namely, impulse, correction, again impulse, again correction, and then another impulse. These waves are labeled one through five, and then the uptrend is shadowed by three waves lower, and they are an impulse down, the correction to the upside plus another impulse down. These waves are labeled as A, B, and C.
- Typical correction size – While buying on corrections at the time of an uptrend or selling on corrections during a downtrend, it is useful to get aware of the size of the typical correction. Grounded on the five wave patterns, the number wave is the initial pulse wave of a trend whereas the wave two is considered the initial correction. The third wave is regarded as the subsequent impulse followed by four and five impulse wave.