Weekend Update 2/20/11

This week was an object lesson in that oldest of trading adages: THE  TREND IS YOUR FRIEND and it's corollary DON'T FIGHT THE TREND.  I came into the week bearish on the EUR/US$, AUD/US$, and SI (silver) with short positions on all three.  My Elliott wave analysis showed the EUR and AUD in downtrends with more selling to come and SI at or near a top (see my Wednesday post).  By the end of the week I was long all three with very solid profits ($12,000+ per contract on SI - sorry couldn't resist bragging).
One of the most difficult things to learn in order to be a successful trader is to not get emotionally committed to one's analysis of a market.  At least I found it to be difficult.  But it's also one of the most important things to learn.  A rare trader it is who doesn't have some opinion on what a particular market may do next, sometimes that opinion is based on gut feel, sometimes on an in depth analytical framework over which much labor is expended.  Either way, it's difficult to not let the conclusions of that analysis cloud one's view of what a market is actually doing.  But it's extremely important to learn not to do so.  Markets are two ton elephants, they're going to do what they're going to do regardless of your opinion - so it's best to either get out of the way or (better yet) jump on for the ride if things aren't going the way you expected.
In my case I use Elliott Wave theory as a market analysis tool.  But I don't use that analysis to decide which way to trade (i.e. long or short) nor to decide when to enter or exit.   I use it primarily because it gives perspective, also as a means of deciding how large a position to take on a given trade, and finally because it's fun.  But my primary trading tool is an approach I've developed that I call the Trendline/Oscillator system.  I've written a basic explanation of the Trend/Osc system and posted it in the sidebar to the right, there is a lot more to it which I intend to elucidate at some future date when time permits.  But the reason I mention it in this discussion is to highlight the basic goals of the system:  1) identify a trend in it's early stages and ride that trend for most of it's run, and 2) recognize and reverse positions if a trend has been identified incorrectly.  It's not designed to catch absolute tops or bottoms, and I don't believe that is necessary - a lot of money can be made if one catches the middle 80% or so of a run.
Truthfully any individual could develop a successful approach of their own as long as they establish the goals used for the Trend/Osc system.  The idea is to utilize an approach that allows you to go with the flow - and then adhere to that approach even if it means that any bias you bring to the equation is contradicting what the approach says you should do.

I had a lot of commitments this weekend which precluded me from doing any EW analysis on the markets I follow, I'll try to get caught up tomorrow and maybe post something tomorrow evening.