by Learning How the Market Moves
by Ralph Russell, Nasdaq Real-time Signals Trader
As traders, we seek information about the market that we can see on our
charts and then we seek to capitalize on that information. One thing that
many of us miss is how the market moves. Yes, we do not even notice
such things in our quest for profits.
Our vision tunnels up when in a trade, much like looking through the
big end of a funnel and all we see is that small area at the end,
as that is where the ticker or cursor that highlights the latest price
is located. Our minds are quickly calculating as the price jumps up and
down, like an adding machine in the hands of an auditor.
Have you noticed the market almost never moves in a single leg move,
and that the markets always make at least three legs in a move?
Many of us refer to this as an ABC move, or it could be a 123 move. The
Elliott label is unimportant. What is important is that we recognize that
we have at least a three-legged movement coming.
If we know there are three
legs to a move, we have great and useful information.
If we are short and the market moves up, then moves down, we can draw
the conclusion we need to exit our trade, as we will likely have another
move up. One up move gets a retracement and then another up move that
may or may not take out the high of the first upmove.
I have never seen a single legged move in the markets. If I think
I see a single legged move, I need to reduce the time frame until
I do see the ABC, as there is always an ABC move within any move on some
So the next time you get long or short, remember, the market always moves
in at least a three legged move. The direction is irrelevant. We will
have three legs in the move as a minimum.
Armed with this information, we should be better able to handle our actual
Further Observations of Value in Trading
Elliott said the market makes 5 Impulsive waves and then corrects In
a 3 wave ABC correction. How can we determine where we might be in the
Things I have observed over time teach me that we all can do simplistic
Elliott wave analysis.
If we are in congestion, defined by saying we are traveling up and down
over the same price area over and over again, overlapping previous highs
and previous lows, generally going nowhere, we are in Wave 2, Wave 4,
or Wave B. That is the only conclusion possible. Triangles and flats
are the best examples of these waves. These waves offer little in
the way of profits for a trader.
What is offered to you from this knowledge? Whichever way the market
was going as it went into the congestion pattern is the way the market
will move when it moves out of that pattern.
By the same token, if we are impulsing, no overlapping of previous highs
and/or lows, extending the range, and trying to go somewhere, we are probably
in Wave 3, Wave C, or Wave 5. These impulsive waves are the waves that
make the profits for a trader regardless of his time frame.
I have never figured out a good way to consistently define Wave A or
Wave 1. This is the beginning of a Wave Structure and is difficult to
define. These wave structures appear on all time frames with the larger
time frame controlling the lesser.
This is a simplistic way of understanding where you might be. It also
helps in determining what the outcome of the formation on the chart you
are viewing may be and thus helps you trade successfully.