ANSWER:

The concept of a pyramiding, while great in theory, rarely works well in practice. First, there is the inclination to add to a position after a large gain. Why? A sizeable gain convinces you “I was right” about the past so I’m probably going to be “right” about the future, which is when greed kicks in. You say to yourself, “The market did exactly what I thought, so my scenario is on track. I could make so much more money if I doubled my position.” With a significant, forecasting success under your belt, along with plenty of buffer to protect your original position from loss, plus a sizeable dose of ego and greed, there is a strong human tendency to focus on how much you might make instead of what could go wrong. 

In the real-world, when a market has advanced in your favor, and you add to you position, your new “breakeven” point advances halfway between the two entries (assuming the same position size at both points). After pyramiding, the market need only retrace 50% (between your first and second entry) to reduce your profit to zero. Since emotions tend to run highest at market peaks and troughs, there is a strong propensity to add to a position when your profit is greatest (i.e., at a market peak), which creates the likelihood of a sizeable reaction (i.e., the 50% retracement needed to reduce your gain to zero). 

When you see a large profit drop to zero, it can be emotional and demoralizing. As the market drops below breakeven, with your position twice its original size, you will lose money twice as fast as previously gained. That is the point when panic typically sets in and most exit. Even if you were eventually right about the market’s trend, the common result of pyramiding (averaging up) is that your position is stopped out at breakeven or worse. Pyramiding can have far more devastating consequences if your additional positions are larger in size than your original.

ANSWER:

This question addresses a core difference between Elliott Wave and NEoWave. Under R.N. Elliott’s original theory, there were only a few “never break” RULES (e.g., waves-2 and 4 could not share any of the same price range, except in “Diagonal Triangles” AND wave-3 could never be the shortest wave in an impulsion). Nearly all other concepts, including the rule of alternation (which I consider essential), is not enforced by orthodox Elliott Wave analysts. It is hoped for, but does not make or break a count. 

NEoWave’s logical structure is composed only of hard-and-fast rules, no “sometimes, maybe’s or guidelines.” If a market does not produce the specific, NEoWave behavior required, a different pattern is forming than thought. There are no exceptions to behavior under NEoWave. If the behavior isn’t present, something else is going on. 

So, for example, if you see a rally that looks like a “perfect” 1-2-3-4-5 advance (i.e., it contains no overlap between waves-2 and 4, it has “perfect” alternation between waves-2 and 4), BUT there is no extended wave, then that move is NOT impulsive. Under NEoWave it would be an unfinished, complex a-b-c-x-a-b-c corrective rally that still has to complete the final waves-b & c. 

The strict requirements of NEoWave pattern development create two, unique circumstances not present under Elliott Wave. When a market is near the beginning or end of a pattern, wave structure is clear, forecasting is easy and NEoWave allows for extremely detailed forecasts not possible with orthodox Elliott Wave. When toward the center of a pattern’s development, NEoWave’s inflexible nature and extensive rule set creates the exact opposite problem – the inability to predict what will occur next. 

Orthodox Elliott Wave, on the other hand, allows the analyst so much flexibility that it is possible to have an opinion nearly all the time. The cost of such flexibility is frequent inaccuracy. NEoWave allows one to know when it is safe to forecast and when it is dangerous. The “loose” nature of orthodox Elliott Wave does not allow such fine differentiation, which frequently gives the orthodox Elliott Wave analyst the false belief he can predict markets all the time.

ANSWER:

Each market trading vehicle (i.e., stocks, futures, options, ETFs) has its own, ideal, minimum/maximum time horizon for trading. Many stocks do not move enough to allow for low-risk, high-potential trades on hourly or daily charts. But, due to the leveraged nature of futures and options, small market moves can produce big gains, so they are ideal for short-term trading on hourly and daily charts. Options are extremely time and volatility sensitive, so they are best suited for intra-day chart trading. Futures work well on nearly any time frame below weekly, but because futures contracts expire usually within 1-3 months of becoming the most active contract, weekly chart may only experience 4-12 bars before the contract expires. Since non-leveraged ETF’s don’t expire, and most have extremely low holding costs, you can hold them indefinitely, which makes them ideal for Weekly, Monthly and Yearly chart trading. For the reasons listed above, all NEoWave Trading services quote futures for Hourly and Daily-based trades while the Weekly time-frame addresses ETF trading. At some point, if there is enough demand, I might direct NEoWave Hourly trades to the Options markets.