Questions
What do successful traders do differently than most people?
The simple answer to this question is objectivity. If you remain objective, no matter what, you will have (on average) less chances of losing money than trading based on "blind faith". Objectivity means you need to have an invalidation point for your thesis. A point that, if broken, it will force you to asses your thesis again, probably on a zoom out chart looking for what you have missed on your original thesis. Being objective means being willing to let go very quickly your viewpoint. Because if the trend reverses, the market won't wait for you to make your mind. It's you that has to adapt to the market environment, not the other way round. Being objective is the hey to being profitable in the long run.
How effective Elliott Wave is?
The short answer is around 70%. Yet Elliott Wave is subjective. So, how do we add objectivity to Elliott Wave? Using levels. For the next example, you might want to open the chart in here in a new tab and continue reading. Looking at the chart you will see there are 2 pink boxes below current price. The first pink box is the first support area. The second pink box is the second support area. Each support area has levels. These are Fibonacci retracements in semi-log scale. The way to read this is quite simple: If the last support level of the upper box is broken, then the probabilities shift to price "visiting" the lower support area. In other words: As long as the last support level of the upper box hold, you should look up. Of course the levels on the upper pink box are not set in stone, the higher price goes, same does the retracement levels, so those levels will change according to price action. But for a short time trade, you can certainly use the lowers support of the upper pink box as a stop loss order in case you decide to buy.
How to identify if a market is due to a correction?
Most people have the constant idea that markets might correct tomorrow, and most of the times that keeps them away from trading markets. This is even more true for people that have been beaten up trading using a big position size instead of managing their risk properly. So, let me turn the question around before actually answering the original question: How do you prevent a painful drop on your portfolio in the event that a market corrects more than expected? The simple answer is managing your risk properly. That means managing your allocation size properly (not being over exposed) and also having a stop loss order for the money you are not willing to lose. And additionally, having cash aside if the market decides to correct. If you do that then you won't need to worry about what the market will do tomorrow.
Now let's get back to the original question. If you study a long term chart of an asset, you will identify certain patterns in price that might give you clues about what is about to happen and what not. Take a look at this chart on BTCUSD for example. This is the most bearish scenario for BTC as of writing. It suggest BTCUSD can drop to 25K or below. Yet look at the latest correction on BTC. You will see in the chart a vertical line highlighting the candle and technical indicators posture before the acceleration on the drop started. What do you see? If you look at RSI, you will see that market participants waited for Daily RSI to be below 50 before they started to add to their shorts (this happened on May 11th of 2021). Additionally, both MACD and RSI presented negative divergences. Negative divergences is when price continue to move higher to sideways, while technical indicators start a downtrend. So, bears do not short a particular market at any given point in time. They wait for certain conditions before going aggressive on their shorts. The same is true for Bulls. Bulls add heavy on their positions when certain conditions are met. If you study the many big corrections on BTCUSD you will find similar patterns on the indicators and price action. As Mark Twain once said: “History never repeats itself, but it does often rhymes”.