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Aaron Lynch A cliché that seems to be constantly ringing in my ears recently is that there are so many good trades, why take a bad one? Most traders I meet along my travels will have two distinct attributes: they will either over-analyse a market and then find that paralysing, which detracts from their trading, or they will place so much faith in one indicator or signal and ignore other relevant information.
The basis for my entries and exits is always linked backed to my swing chart and identifying patterns like ABC points to flag the potential trade. Now this is a system on its own and delivers results, but if you can use other factors as a contributing reason then I am all for that. Over the last 18 months a new ‘wave’ of Elliott based traders has emerged and I am often asked how Gann and Elliott differ and whether they can be used together.
I take the line that David Bowden explained in his material that classic Elliott was a powerful way to trade - it was just sometimes hard to identify. At the Gann Mastery workshops I present a session on ‘Gann’s Sections’ of the market that looks at wave counts or ‘campaigns’ and the deeper I have looked at this over the years I see a common link to successful trades when combining the two together. To be very clear I am using the Gann trading rules I know inside out with a confirming factor of broad Elliott wave counts. I do not get heavily into the variety of ways to count waves as this can lead you on a very long journey that ends up being academic as opposed to profitable.
The chart below on RIO has been an interesting market to watch this relationship play out. The current Elliott wave count has our market running from the May lows of this year and the overall bias has been an uptrend with good long trading opportunities.
Chart 1
click chart for more detailNow we can take a look at the same period of time using ABC hi-lites to identify potential trades. I have also manually labelled the wave counts for easy identification. Gearing your ABC trading bias to the underlying wave count has delivered some excellent trading results. Twelve long trades have been signalled and only one trade has been a losing trade, with the remaining being profitable or breakeven. The results overall were improved by ignoring any short trades that were signalled in the run up.
Chart 2
click chart for more detailFor those who know a little about Elliott you will know that the wave counts are not static and they can change and re-number as the price action plays out. This is the nature of Elliott trading and can be a cause for confusion when first starting out. That is why I believe that using the mechanical trading plan like the ABC trading rules can remove much of the subjectivity in trading and then can be combined with confirming indicators like time analysis and wave counts for more consistent trades. Remember, at the end of the day, trading is about taking better trades more consistently.
The next step for you is to add this into your trading plan, including the rules outlined.
Good Trading
Aaron Lynch
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