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- 18 December 2008
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Hi Kennas,
The EW process looks at the past market action in an attempt to determine which pattern is playing out and where we are in that particular pattern. No system is perfect however what we attempt to do in the next step of the process is to assume a few high probability scenarios. As the market action continues to unfold, these possible scenarios fairly quickly get eliminated until you are left with one pattern.
Your comment "just wondering how to trade it except for after the fact." maybe misses what we are attempting to do. It may appear at times that in discussing possible scenarios we are saying if/but/etc but in the majority of occasions the high probability scenarios tend to predict that the market will go in one particular direction but the possible pattern to achieve that particular directional move is not clear at the time. Therefore from a traders/investors perspective it doesn't matter which specific pattern will unfold as long as the higher probability scenarios point in the right direction and that these scenarios indicate that the length of time that the next move will last is sufficient to execute a safe trade.
In those cases where the higher probability scenarios point to opposing market action then we know that it is not a time to attempt to execute a trade because the outcome is uncertain and hence too risky.
For the above reasons I believe that EW is a powerful tool in the toobox of the trader/investor.
There are times when the pattern is clear and other times such as during the playing out of a complex corrective wave it becomes impossible to predict the outcome of a pattern because the minute you attempt to do it, it morphs into something different. These are times when you just have to sit it out and wait for the next clear pattern to present itself.