My Trading Strategy


THE KEY ELEMENTS OF MY TRADING STRATEGY


Trader's Strategy
  • The Pattern Recognition System [PRS] evolved from the Elliott Wave, Harmonic Wave, and NeoWave theories
  • The Fibonacci Sequence
  • Momentum and Volume
  • Japanese Candlesticks via "Candlestick Math"
  • Trendlines / Channeling techniques
  • Cycles
  • Slope Analysis


ABOUT THE PRS SYSTEM


What is the Pattern Recognition System?


The PRS is an analytical tool only known to me. The system derived from the Elliott Wave / Harmonic Wave / NeoWave theories, which I consider prototypes, meaning that they don't work well on their own. I have spent several thousands of hours back-testing it by examining tens of thousands of price charts.


What is the biggest strength of the system?


As opposed to the other "wave" theories, I can consistently label 100% of the charts using my own set of rules and guidelines. With the Elliott Wave theory, for example, it's only possible to correctly label maybe up to 50% of the charts because the remaining ones don't fit the specifications.


In addition, my system allows me to know in advance whether a particular impulse wave will be extended and to differentiate between the start of an impulse wave vs. a leading diagonal as well as a zigzag vs. a triangle right after the first wave is completed.


What is your process for analyzing price action?


I always begin with a quarterly or a monthly chart analysis (with no indicators) and narrow it down to smaller time frames. This is the only way to see the whole picture. Then, depending on my goals, I focus on the latest moves by classifying them into specific patterns. I analyze all relevant waves and try to fit them into smaller patterns.


Almost always, there will be a few possible matches. Through a very brain-intensive elimination process, I only leave one or two. Next, I reexamine the selected patterns and use a set of indicators and other technical tools to verify my choice. As the final step, I establish invalidation levels which typically align with stop loss levels and propose "take profit" price targets.


Is your system much different from the other "wave" theories?


As a Master Elliottician, I know all the rules and guidelines of the theory, so it made sense to base my own system on this prototype. My labelled charts are compatible with the charts used by the Elliott Wave theory.


However, I don't employ certain types of "waves" (unless they are in a very specific location) because they don't reflect market movements. I don't rely on the established Fibonacci ratios, either. I discovered and implemented a new mechanism that is crucial to all price action movements, which makes my system more foreseeable.


I realize some advanced technical analysts claim to have discovered new Elliott Wave rules, but adding new rules or guidelines without a significant redesign of the model is not going to accomplish the goal of understanding price movements.


Classic Elliotticians are repeatedly forced to break their own rules and/or guidelines to label charts; in my approach, all kinds of charts can be consistently labelled using the same set of customized rules and guidelines.


So.. the market doesn't move in the "motive wave - corrective wave" mode?


The market is more sophisticated than that. It moves in a combination of waves and the future actions mostly depend on the location and personality of the waves.


Is your system bulletproof?


No trading analysis or strategy can be bulletproof. However, my unique system that cannot be copied or re-engineered by computers adds a strong layer of verification to the anticipated price action. It also limits the possible scenarios to the minimum.



CASE STUDY


OVERVIEW


An investor has been holding stocks of a transportation company for almost 3 years. He missed one opportunity to sell it with profit; instead, he decided to average down. However, the price has yet to reach his goal. He contacted me to come up with a strategy to sell the stock at the best price and make the investment profitable. The stock started trading in October 2020, so all data is available.


Investment value: $1.91 per stock.


Today's price: $0.4770 per stock.


Investment goal: sell the stock for $1.91 or more.


SOLUTION


After careful examination, I devised three possible price action scenarios: two bullish ("Bullish Scenario I" - Primary / "Bullish Scenario II") and one bearish ("Bearish Scenario").


The next part was to decide which wave count should be considered as primary and alternate. Taking into account the recent news that the company intends to purchase an AI driving system worth about $85M, I chose the "Bullish Scenario I" as the most probable outcome. After the acquisition, the company's market cap would be about $92M, which accurately corresponds to wave E of an expanding triangle at the $3.20-$3.40 level.


The primary scenario is presented below:




My recommendation was to watch price action and set up stop losses depending on its levels:

  • If the price falls below $0.39 (new all time low), switch to the "Bearish Scenario."
  • If the price exceeds $2.10, set up a stop loss at $1.98.
  • If the price exceeds $3.10, set up a stop loss at $2.98.
  • If the price exceeds $3.80, switch to the "Bullish Scenario II" and continue setting up a stop loss at higher levels up to $5.98, with a maximum potential of $6.50.