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Elliott Wave Principle: Believe This and Go Broke Trading

Elliott Wave Principle: Believe This and Go Broke Trading
Elliott Wave Principle: Believe This and Go Broke Trading

It never dies.

People just want to believe.

Consider this excerpt:

The Elliott Wave Principle posits that collective investor psychology, or crowd psychology, moves between optimism and pessimism in natural sequences. These mood swings create patterns evidenced in the price movements of markets at every degree of trend or time scale. In Elliott’s model, market prices alternate between an impulsive, or motive phase, and a corrective phase on all time scales of trend, as the illustration shows. Impulses are always subdivided into a set of 5 lower-degree waves, alternating again between motive and corrective character, so that waves 1, 3, and 5 are impulses, and waves 2 and 4 are smaller retraces of waves 1 and 3. Corrective waves subdivide into 3 smaller-degree waves starting with a five-wave counter-trend impulse, a retrace, and another impulse. In a bear market the dominant trend is downward, so the pattern is reversed—five waves down and three up. Motive waves always move with the trend, while corrective waves move against it. The patterns link to form five and three-wave structures which themselves underlie self-similar wave structures of increasing size or higher degree. Note the lowermost of the three idealized cycles. In the first small five-wave sequence, waves 1, 3 and 5 are motive, while waves 2 and 4 are corrective. This signals that the movement of the wave one degree higher is upward. It also signals the start of the first small three-wave corrective sequence. After the initial five waves up and three waves down, the sequence begins again and the self-similar fractal geometry begins to unfold according to the five and three-wave structure which it underlies one degree higher. The completed motive pattern includes 89 waves, followed by a completed corrective pattern of 55 waves. Each degree of a pattern in a financial market has a name. Practitioners use symbols for each wave to indicate both function and degree—numbers for motive waves, letters for corrective waves (shown in the highest of the three idealized series of wave structures or degrees). Degrees are relative; they are defined by form, not by absolute size or duration. Waves of the same degree may be of very different size and/or duration. The classification of a wave at any particular degree can vary, though practitioners generally agree on the standard order of degrees (approximate durations given):

-Grand supercycle: multi-century
-Supercycle: multi-decade (about 40–70 years)
-Cycle: one year to several years (or even several decades under an Elliott Extension)
-Primary: a few months to a couple of years
-Intermediate: weeks to months
-Minor: weeks
-Minute: days
-Minuette: hours
-Subminuette: minutes

Amazing.

Elliott Wave prose is almost as good as Scientology:

Ep. 609: Tim Larkin Interview with Michael Covel on Trend Following Radio

Tim Larkin
Tim Larkin

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Tim Larkin is one of America’s leading Pro-Victim Rights and Personal Safety Advocates. He has had a 25 year career training over 10,000 clients in 52 countries in how to deal with imminent violence. His books include How To Survive The Most Critical 5 Seconds Of Your Life and Survive The Unthinkable. His newest book is When Violence Is the Answer: Learning How to Do What It Takes When Your Life Is at Stake.

Tim’s father was an officer in the Navy. He knew at the age of 13 he was going to be a Navy Seal. His whole adolescence and early adulthood was dedicated to that goal. After college he started his Seal training. Toward the end, with just a couple weeks left of rigorous training, he went out on a routine training dive and a wave hit his ear. Tim burst his eardrum and his career was over. This was the first time, at age 21, his body had failed him. Sometimes the smallest things, like an eardrum bursting, can change your whole course of life. This lesson learned early on by Tim translates to everything he now teaches.

Tim has always stressed that the human mind is the only thing we do not have a weapon against. The human mind will always find a way if there is intention and Las Vegas is an example of that. Gun control is important however there is no amount of laws that will stop someone from inflicting pain, and this is where Tim’s work comes into play. He shows how a rational fear of violence is necessary in today’s world.

Knowing where threats lie, having an exit plan and being self-aware at all times might feel mundane, but it could save your life. Tim runs through real life scenarios: both men and women being targeted and attacked. What is the biggest takeaway? There is no benefit in focusing on the differences between you and a predator (ie. he is bigger, stronger, faster), but rather focus on the similarities and where the universal week spots are throughout the human body. We as humans are all hardwired to protect ourselves. Even though predators may be bigger, stronger, faster, if you understand basic human injury, you can exploit that and stop an attacker.

In this episode of Trend Following Radio:

  • Las Vegas shooting
  • Simulated shootings
  • Asocial violence
  • Non-verbal cues
  • Disabling one of your sensory feelings
  • Navy Seals
  • Exploiting the human body
  • Knowing principles not techniques
  • Violence is a 50/50 endeavor
  • Killing with kindness first

“Violence is rarely the answer, but when it is, it is the only answer.” – Tim Larkin

Mentions & Resources:

Want a FREE Trend Following Video? Get it here.

“I suppose that this is a weird request…”

Feedback in:

Hi Michael,

I am a member in the [country] military and have been serving for the past 12 years and I am looking to change careers in the next 5-8 years. I was wondering if you have any contacts here in [country] that are Trend Traders that could possibly be open to mentorships/coaching?

The reason why I ask is I have read your books “The Complete TurtleTrader”, “Trend Commandments” and I am currently reading “Trend Following” All have been really insightful and have given me a direction in the type of trader I want to be. I understand that there is a lot that I can learn on my own, but to be able to learn from someone with a wealth of experience and who is currently “in the business” and can give me an opportunity to learn through osmosis would be highly beneficial.

I suppose that this is a weird request and I assume that you may have received requests like this before.

Any help would be greatly appreciated.

Cheers
[Name]

Not an odd request. It’s what I do. You may consider a next step.

“I’m a big fan of your podcast and want to start trend trading…”

Feedback in:

Hi Michael,

I’m a big fan of your podcast, and want to start trend trading. I’m a UCF student and actually just met Toby Crabel as he did a private meetup with the young investors club at UCF. I’ve been trading since January, but just blindly trading. I’m going to quit my Internship at Lockheed starting January to take the risk of being an independent trader for my last semester before having to start to pay off my student loans. Hopefully you can show me the right steps to being a successful trend follower.

All the best,
[Name]

Starting steps: Go. And my podcast: Listen.

Jean-Philippe Bouchaud: “Black Was Right: Price Is Within a Factor 2 of Value”

Jean-Philippe Bouchaud (see book and podcast) offers new research. Excerpt:

“We provide further evidence that markets trend on the medium term (months) and mean-revert on the long term (several years). Our results bolster Black’s intuition that prices tend to be off roughly by a factor of 2, and take years to equilibrate. The story behind these results fits well with the existence of two types of behaviour in financial markets: “chartists”, who act as trend followers, and “fundamentalists”, who set in when the price is clearly out of line. Mean-reversion is a self-correcting mechanism, tempering (albeit only weakly) the exuberance of financial markets.”

Download.

Jean-Philippe Bouchaud
Jean-Philippe Bouchaud

Memoirs of Extraordinary Popular Delusions by Charles MacKay

Read the classic from 1841 that outlines manias across the human condition.

Lessons that never die.

1. Memoirs of Extraordinary Popular Delusions by Charles MacKay Volume 1 (PDF)

2. Memoirs of Extraordinary Popular Delusions by Charles MacKay Volume 2 (PDF)

Excerpt: Extraordinary Popular Delusions and the Madness of Crowds is an early study of crowd psychology by Scottish journalist Charles Mackay, first published in 1841. The book chronicles its subjects in three parts: “National Delusions”, “Peculiar Follies”, and “Philosophical Delusions”. MacKay was an accomplished teller of stories, though he wrote in a journalistic and somewhat sensational style.

Memoirs of Extraordinary Popular Delusions by Charles MacKay
Memoirs of Extraordinary Popular Delusions by Charles MacKay

Trading Food for Thought: November 20th Edition

Food for thought:

Enjoy.