Trader, Investor, or Analyst?
Elliott Wave Technology strongly endorses the distinct separation of roles Between Analyst and Trader/Investor. Whereby tenacity may benefit a good analyst, quite often it will work against him should he be holding a leveraged position in the market which he covers.
Both the analyst and investor/trader can be readily compatible, however they clearly play two distinctly different roles. A trader/investor comes into the marketplace strictly to make money, earn a return, or defensively preserve their capitol. The trader/investors performance is thus measured entirely by profit or loss at the close of the trade, or as measured by a benchmark rate of return over a given period of time.
The analyst's main objective, however, is to fully comprehend, and objectively assess price action in order to accurately anticipate what markets will likely do next. The analyst is thus measured by whether or not his forecasts prove to be correct.
(Disciplined Trader author) Mark Douglas put it quite well when he made reference to novice traders. He conveyed that the better of an analyst the beginner is, the tougher time they will have trading.
It is much easier said than done, but if you cannot differentiate between the two, the analyst who trades frequently is likely to become more concerned about being right or wrong rather than focusing on objectively managing the risk to their open positions. Also with regard to the analyst who trades, their forecasting objectivity will quite often become biased as a result of the unavoidable emotional involvement that comes with a having an immediate vested interest in the trades desired resolution.
It then becomes quite prudent to conclude that the primary role of the analyst is to alert the trader / investor of potential trading or investment opportunities. Analyst alerts may include, but are not limited to, formulation of price targets, defined support & resistance, and larger degrees of trend or cycles.
At the end of the day however, it is the trader / investor who must still develop his or her own personal trading strategy to take advantage of such potential opportunities. In this regard, a full grasp of prudent money management is one of the key components of trading and successful investing.
One needs to know prior to establishing a position just how much may be at risk should the market suddenly move against them, or breach a technical guideline that places the original forecast in question. If the trade requires a bigger risk than they are willing to take, they should pass on the trade, or perhaps search for another technique, or vehicle bearing less risk to take advantage of the potential opportunity.
Traders and Long Term Investors alike must learn where to objectively place and trail stops based on both the type and nature of trade or investment, and in concert with the chart patterns associated with each. Using a set dollar amount, blatantly obvious price points, or some other fixed or percentage criteria for placement of stops is generally a bad idea.
Just as a trade strategy should be built with a stop mechanism, there is nothing wrong with a strategy that defines an optimum exit that the trader/ investor would deem acceptable given the nature of the trade and risk / reward profile.
Depending on the nature of the trade and time frame, the risk / reward ratio ought to be at least 2.5 : 1 for shorter term swing trades, and a minimum of at least 3:1 or more for longer duration position trades.
The analyst in this instance would assist the trader in defining immediate upside or downside price target projections whereby the trader can then assess the profitability ratio exiting at such levels, if and when they are reached.Conversely, should an investor or long term position trader have the fortune of holding a position with large profits accumulated in a strongly trending market, it is then wise to carefully trail exit stops far enough away from the market in order to let those profits run.
Alternately, if multiple shares or contracts are in play amidst such a strong and long standing trend, traders or investors may wish to employ a strategy of taking profits on 1/3 of their position as prices reach extremes, then perhaps reinstate their original size upon typical consolidations which hold longer term trend support.
The analyst in this instance is of great value to trader's and investors in providing a big picture framework as to the larger degrees of trend amidst such long-standing maturing runs in price. Accurate long view analysis will often alert investors as to when and where a terminal of potential significance may reverse the run significantly.
Our UNWAIVERING COMMITMENT, SOLE DEDICATION, and PURE PASSION:
NO FEAR / NO GREED please…
Just the ART & SCIENCE thank you.…
Impassioned by the purity, elegance, and art of well-constructed price charts, we accurately frame and forecast future price direction.
The chart is our canvass. The continual evolution and historical price patterns of the market is our model. The way in which we frame and dress these evolving models is the art of our discipline, applied Technical Analysis. The forecasting, and price target projections based on such framework, is our applied science. Successful forecasts and consistent achievement of price targets then become the masterpieces we forever shall leave in our wake.
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