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By employing technical analysis a trader can create certain price targets which will go some way to help confirm or reject an Elliott Wave count. In addition to this, it is very easy (with the appropriate tools) to take a non technical indicator and use it to attach further credibility to the trade set up. This article will use an integrated approach to show how a reversal trade was spotted on Microsoft (MSFT:NASD) and explain how Gann analysis can be combined with Elliott Wave and Fundamental analysis to help pick better trades.
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By running a routine scan in early July, a ‘plain vanilla’ Elliott Wave 5 (reversal) trade makes it on to the short list. With so many trades regularly presenting themselves, the skill has always been to pick which Elliott Wave trade is most likely to succeed. There are some excellent courses to help in this regard, but the best and least expensive is the TradingKey course, which comes with a complete checklist for recognising and taking profitable trades. In the instance described here, Gann analysis also helps confirm the possibility of a reversal, reinforcing the fact that every piece of trading education can be used in combination for better results. There are no right or wrong methods in trading, just winning and losing!
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Gann suggested that ranges repeat regularly in the action and reaction of price and the ‘Wave Extension’ tool in your ProfitSource (or Integrated Investor) is perfect for measuring this. Looking at the first range down on MSFT (April to May) and projecting that range again from the double tops in June it is evident that the range has repeated (formulating a price target of around $22.70). A student of Elliott would also note that the 5th Wave is sitting at 61% extension of the W1-W3 range (an important Fibonacci level). On the smaller scale, the two double tops retrace close to the 200% price target which a technical analyst would expect.
Using just technical analysis only gives the trader part of the total picture and that is why more and more people are turning to Integrated Investor and the skills taught in the Masterkey. By checking the fundamentals it becomes pretty obvious whether or not the rest of the market will find a reason to buy into MSFT.
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The blue line on the lower chart shows the current Price Earnings ratio – basically a measure of how much investors are willing to pay for the earnings of the company (again, something you can learn more about in the MasterKey. The historical ‘value’ of MSFT is given by the red line. As the current value drops below the historical value – there’s opportunity! On its own this would be enough to make an investor take note but put into the context of the technical analysis described above, and a savvy trader will be getting excited. All that needs to be done now is to look for an appropriate entry trigger and implement the usual risk mitigation practices – again, precisely what is taught in the TradingKey.
Stay Sharp,
John Jeffery
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