ANSWER:

When tossing a coin, there are only two future outcomes – heads or tails. If allowed 1000’s of tosses and guesses, the odds are you will “forecast” the outcome accurately 50% of the time. But, what happens to your odds if the number of tosses is limited to 100 or 10 or 1? Or, what if you allow the coin to be tossed only a certain period of time. Can the average person toss a coin once every 10 seconds, and what if you don’t have an “average” person? Each additional variable begins to impact the future outcome and the accuracy of your guesses. The odds of 50% accuracy decrease as the number of tosses decline or the number of variables increase. The more complex a system, the more difficult it is to predict the future. 

If you own stock in a large, multi-national corporation, you can theoretically hold that certificate forever. I have family members who inherited stock 50+ years ago and never sold it, even as the company went through mergers, buyouts, acquisitions, splits, etc. Unless a company goes bankrupt, there is no expiration date to the transaction. For Fortune 500 companies (and the like), if you wait long enough, inevitably the stock’s value will increase with time and at a rate equal to or greater than inflation. This makes financial success in the stock market (given enough time) relatively easy compared to other paper investments, such as futures and options. 

When you trade futures, all aspects of stock trading are present, plus two additional factors – leverage and timing. You can’t hold a futures contract forever. When it expires, either you made or lost money. As a result, you not only need to be right about the direction of the market, but the expected move needs to occur by a certain date, which is typically no more than a few months in the future. That increases the complexity of the environment, thereby reducing your chances of success. 

When you trade options, all aspects of stock and futures trading come into play, plus the added dimensions of volatility (beta, gamma, delta), the ability to buy or sell two vehicles (Puts or Calls) and the decision must be made of whether to enter them in-the-money or out-of-the-money. Finally, liquidity is an additional factor you rarely need to consider in larger markets. The number of variables involved in the options markets increases the complexity of the transaction to such a degree that the chances of accurately assessing market direction, magnitude, volatility, liquidity and timing are remote. My broker Byron tells me at least 80% of option BUYERS (i.e., those buying Puts or Calls) lose money. My other broker Jason says it another way, “Options are the only game in town where you can be right about the market’s direction and still lose money.” 

Options constitute one of the most complex markets in the world, which is the reason so few are able to consistently make money trading them. 

ANSWER:

Great question! Every market technique has its advantages and disadvantages. One of the advantages of wave theory is it provides the user tools to pinpoint major market turns. If you need to plan far into the future, that can be a tremendous benefit. For example, knowledge a major top was forming in the S&P in 2000 allowed me to hedge my mother’s stock portfolio throughout the 2000 to 2002 bear market. Instead of suffering a 50% decline in value, as many did, her account was UP nearly 50% during the same period. 

Unfortunately, as a market moves away from a major turn, wave structure can be indecipherable for extended periods, which is one of the disadvantages of wave theory. For example, wave structure was mostly unclear from 2003 through 2006. At that time I could only predict the S&P would trend sideways-or-up, but I could not specifically predict day-to-day, week-to-week or even month-to-month action. 

When wave structure is not clear that is when NEELY RIVER can be very useful. It allows you to safely trade a market having no knowledge of what will come next. The purpose of Neely River is to enter a market at an inflection point, wait for a reaction, then lower risk to zero. At that point it no longer matters what happens next. If the inflection point turns out to be a top or bottom, you’ll have a great trade. If not, you’ll breakeven. If your goal is to make money trading, it doesn’t get much better than that. 

Elliott Wave and NEoWave are all about predicting future market behavior, which is great when markets are near the end of a trend and predictable. Neely River is all about trading technology, not forecasting, which is perfect for the 70-80% of the time a market is NOT at the end of a trend and is not predictable.