Learning to Trade - The Grand Strategy
InvestorEducation / Technical Analysis Mar 25, 2007 - 10:07 PM GMTBy: Joseph_Russo
As follow up to our previous article, Learn to Trade Like a Spartan Warrior , we thought it wise to dig a little deeper, and provide additional clarity relative to aligning ones' specific objectives with fitting strategies.
It is not difficult to draw the analogy of war into the financial sphere. Long wars comprise a series of minor and major battles. More often than not, one war leads to another.
One glance at a long-term price chart and one quickly realizes that the peaks, troughs, and the sharp jagged edges defining it, exemplify a “war without end.”
This is the first in a series of articles that will assist both traders and investors alike, in recognizing how and where they are best suited to engage.
First, we will outline a basic grand strategy overview. The balance of the series will explore strategy and tactical simulations from the vantage point of the four distinct areas of participation that follow.
Selecting suitable tours of duty
There are four broad market participants in theater. They are:
• Long-Term Investors
• Position Traders
• Swing Traders
• Short-Term Traders
To launch successful campaigns, one must first reconcile the basic characteristics inherent to each of the four disciplines, and develop their strategies accordingly.
We will illustrate how participants in each of these four areas may go about sizing up a market, assembling strategies, identifying risk, and managing tactical campaigns through a completed trade or investment cycle.
Before we do this, we will address how to go about developing an astute long-view market opinion.
Taking everything into Account
Investment Accounts: Retirement Accounts: Trading Accounts: Speculative Accounts:
We trust there are quite a few top guns in the field, deploying calibrated munitions across the full spectrum of account types listed above. It is important that all such funds are earmarked and apportioned prudently.
To provide a level of continuity throughout the series, the broad market under study will be the NASDAQ 100.
Grand Strategy
Grand strategy encompasses the effective management of ones' total resources in the conduct of investment and speculation.
CENTRAL PLANNING
Adversarial Terrain: The NASDAQ 100
To form an opinion, develop strategy, and deploy funds in any time frame, one must first size up the big picture landscape, then work one's way down to gain optimal competitive advantage.
In the charts that follow, we have applied rigorous study in arriving at three contingent positions, and potential paths for the Nasdaq 100.
NASDAQ 100 Monthly Bars:
Quick Read: The long-term trend is down, the intermediate-term trend is up, and the shorter-term trend is up but approaching significant overhead resistance.
In our first assessment, the Nasdaq 100 is in the process of terminating a first wave of advance at minor degree, en-route toward a primary “B” wave retaliatory response to the devastation endured from 2000 through 2002.
At this stage, the bullish minor degree advance is susceptible to a minor set back prior to launching its next significant offensive.
At stake is temporary forfeiture of 50% to 60% of the most recent advance from the base established in July of 2006. Such forfeiture would equate to an 11% - 13% decline from current levels.
If the Bullish contingent were able to sustain adequate momentum, the current campaigns most optimistic target would be the recapture of 2/3rds its prior losses. Such success would equate to a near 80% advance from current levels.
Grand strategy charts like the one above, are in abundance throughout Elliott Wave Technology's Millennium Wave Quarterly Report .
NASDAQ 100 Monthly Bars:
In our second assessment, the Nasdaq 100 is in the process of terminating an (a) wave advance of intermediate degree.
At this stage, the intermediate bullish degree advance is rather mature, and susceptible to a more significant set back prior to launching its next significant offensive.
At stake is forfeiture of 100% of the most recent advance from the lows established in 2004 and 2006. Such forfeiture could equate to a 20% - 30% decline from current levels.
Should such an outcome prevail, the current campaigns optimal target would be reduced to the recapture of 1/2 its prior losses. Such recovery would equate to a near 50% advance from current levels.
Developments of lucid grand strategy perspectives like these are critical to the design and formation of smaller scale campaigns'.
Our Millennium Wave Quarterly publication clearly illustrates that no other form of market analysis is able to establish meaningful price path contingencies more succinctly than properly applied Elliott Wave Theory.
Because of its immense forecasting prowess, Elliott Wave Analysis is the cornerstone to our longer-term forecasting discipline.
NASDAQ 100 Monthly Bars:
In just two short years upon the onset of the new millennium, five crushing waves down destroyed the NASDAQ 100, beyond all recognition.
The Bearish contingent claimed unequivocal victory upon capturing 83% of the opposing forces advance.
Such complete and utter devastation has the potential to cripple a market for years to come. Events such as these often mark key primary terminals whose turning points become part of the historical record for decades.
In this our last assessment, the Nasdaq 100 is also in process of terminating an (a) wave advance of intermediate degree.
At this stage, the intermediate bullish degree advance is rather mature, and in this scenario, susceptible to a serious event-risk set back. Much is at stake should this occur.
In this setting, the NASDAQ 100 is vulnerable to complete forfeiture of all progress made from the October 2002 bear market lows. Such a set back would equate to a near 60% decline from current levels.
Should such an event unfold, the current campaigns optimal target would be the same as where it stands today, the recapture of 1/3 its prior losses. Such recovery would equate to progress of little merit from current levels.
Recognizing that all outcomes are plausible, one can now dig deeper into smaller time frames, establish working preference parameters, and approach the market with respect.
In our next article, “ rules of engagement ” we will explore principles of strategy and tactics from the vantage point of long-term investors.
The series will continue with strategy and rules of engagement for each of the following:
• Position Traders
• Swing Traders &
• Short-Term Traders
As the above framework shows, Elliott Wave Technology does not predict markets; instead, we respectfully take ownership of the dynamic price action as it unfolds.
Doing so impartially, with adept discipline, enables us to anticipate direction, and then formulate astute, unrivaled guidance based on the continual evolution of price.
By Joseph Russo
Chief Editor and Technical Analyst
Elliott Wave Technology
Copyright © 2007 Elliott Wave Technology. All Rights Reserved.
Joseph Russo, presently the Publisher and Chief Market analyst for Elliott Wave Technology, has been studying Elliott Wave Theory, and the Technical Analysis of Financial Markets since 1991 and currently maintains active member status in the "Market Technicians Association." Joe continues to expand his body of knowledge through the MTA's accredited CMT program.
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