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points B and D. Points A and F are the turning points of the major cycles. These are the high-risk, high-reward trades. Some traders always try to pick the turning points. Some traders prefer less risky trades. |
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Please note that this is a hypothetical illustration. There can be several up waves or several down-waves in a full major cycle. I have only illustrated five little cycles within the larger cycle. There could be more. There probably will not be fewer. |
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Also, there may be more up-waves than down waves, or vice versa. This would probably be because of the effect of the next larger cycle. The whole point is to trade in sync with the larger cycle. If you would like to know more about cycles, I suggest that you study Elliott Wave theory. I am not a pure Elliott Wave Theorist, but I do think that it might be helpful. |
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Neal: In terms of real-world trading, how do you trade? |
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Don: Throughout the day; I am constantly drawing trendlines. Usually, I also draw a parallel line through a significant point to form a channel. A channel gives a very good visual picture of the short-term trend. To draw the channel shown in Figure 4-2, all that was needed were points A, B, and C. |
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If the market breaks a channel slightly but comes back within it, I will modify the lines. I am constantly correcting my trendlines to give as accurate a picture of the market as possible. |
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I am also constantly evaluating whether I expect the market to trade within this channel, or if I anticipate a breakout. I use other factors, such as stochastics, to help in evaluating this possibility. |
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I have just received an e-mail from a friend who sold short December soybean meal early last week. He put a $3.00 stop on his trade. Of course, he got stopped out. Of course, December meal is now lower. (I am not making fun of my friend. I am just venting my frustration at using stops. When I use a stop, the market always hits me and then reverses. When I don't use a stop, it is amazing how far the market goes against me!) |
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He asked me to comment. Here are some thoughts. |
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