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Robert Prechter's Five Tips for How To Trade Successfully
Including No. 5 – Have the mental fortitude to accept huge gains
by Elliott Wave International | September 11, 2009
http://www.financialsense.com/Experts/ewave/2009/0911.html
10 Things You Should and Should Not Do During Deflation
by Robert Prechter, President, Elliott Wave International
August 21, 2009
http://www.financialsense.com/Experts/ewave/2009/0908.html
This article is part of a syndicated series about deflation from market analyst Robert Prechter, the world’s foremost expert on and proponent of the deflationary scenario. For more on deflation and how you can survive it, download Prechter’s FREE 60-page Deflation Survival eBook, part of Prechter’s NEW Deflation Survival Guide. [ http://www.elliottwave.com/deflation-survival-guide.aspx ]
The following article was adapted from Robert Prechter’s NEW Deflation Survival eBook, a free 60-page compilation of Prechter’s most important teachings and warnings about deflation.
By Robert Prechter, CMT
1) Should you invest in real estate?
Short Answer: NO
Long Answer: The worst thing about real estate is its lack of liquidity during a bear market. At least in the stock market, when your stock is down 60 percent and you realize you’ve made a horrendous mistake, you can call your broker and get out (unless you’re a mutual fund, insurance company or other institution with millions of shares, in which case, you’re stuck). With real estate, you can’t pick up the phone and sell. You need to find a buyer for your house in order to sell it. In a depression, buyers just go away. Mom and Pop move in with the kids, or the kids move in with Mom and Pop. People start living in their offices or moving their offices into their living quarters. Businesses close down. In time, there is a massive glut of real estate.
– Conquer the Crash, Chapter 16
2) Should you prepare for a change in politics?
Short Answer: YES
Long Answer: At some point during a financial crisis, money flows typically become a political issue. You should keep a sharp eye on political trends in your home country. In severe economic times, governments have been known to ban foreign investment, demand capital repatriation, outlaw money transfers abroad, close banks, freeze bank accounts, restrict or seize private pensions, raise taxes, fix prices and impose currency exchange values. They have been known to use force to change the course of who gets hurt and who is spared, which means that the prudent are punished and the thriftless are rewarded, reversing the result from what it would be according to who deserves to be spared or get hurt. In extreme cases, such as when authoritarians assume power, they simply appropriate or take de facto control of your property.
You cannot anticipate every possible law, regulation or political event that will be implemented to thwart your attempt at safety, liquidity and solvency. This is why you must plan ahead and pay attention. As you do, think about these issues so that when political forces troll for victims, you are legally outside the scope of the dragnet.
– Conquer the Crash, Chapter 27
3) Should you invest in commercial bonds?
Short Answer: NO
Long Answer: If there is one bit of conventional wisdom that we hear repeatedly with respect to investing for a deflationary depression, it is that long-term bonds are the best possible investment. This assertion is wrong. Any bond issued by a borrower who cannot pay goes to zero in a depression. In the Great Depression, bonds of many companies, municipalities and foreign governments were crushed. They became wallpaper as their issuers went bankrupt and defaulted. Bonds of suspect issuers also went way down, at least for a time. Understand that in a crash, no one knows its depth, and almost everyone becomes afraid. That makes investors sell bonds of any issuers that they fear could default. Even when people trust the bonds they own, they are sometimes forced to sell them to raise cash to live on. For this reason, even the safest bonds can go down, at least temporarily, as AAA bonds did in 1931 and 1932.
– Conquer the Crash, Chapter 15
4) Should you take precautions if you run a business?
Short Answer: YES
Long Answer: Avoid long-term employment contracts with employees. Try to locate in a state with “at-will” employment laws. Red tape and legal impediments to firing could bankrupt your company in a financial crunch, thus putting everyone in your company out of work.
If you run a business that normally carries a large business inventory (such as an auto or boat dealership), try to reduce it.
If your business requires certain manufactured specialty items that may be hard to obtain in a depression, stock up.
If you are an employer, start making plans for what you will do if the company’s cash flow declines and you have to cut expenditures. Would it be best to fire certain people? Would it be better to adjust all salaries downward an equal percentage so that you can keep everyone employed?
Finally, plan how you will take advantage of the next major bottom in the economy. Positioning your company properly at that time could ensure success for decades to come.
– Conquer the Crash, Chapter 30
5) Should you invest in collectibles?
Short Answer: NO
Long Answer: Collecting for investment purposes is almost always foolish. Never buy anything marketed as a collectible. The chances of losing money when collectibility is priced into an item are huge. Usually, collecting trends are fads. They might be short-run or long-run fads, but they eventually dissolve.
– Conquer the Crash, Chapter 17
6) Should you do anything with respect to your employment?
Short Answer: YES
Long Answer: If you have no special reason to believe that the company you work for will prosper so much in a contracting economy that its stock will rise in a bear market, then cash out any stock or stock options that your company has issued to you (or that you bought on your own).
If your remuneration is tied to the same company’s fortunes in the form of stock or stock options, try to convert it to a liquid income stream. Make sure you get paid actual money for your labor.
If you have a choice of employment, try to think about which job will best weather the coming financial and economic storm. Then go get it.
– Conquer the Crash, Chapter 31
7) Should you speculate in stocks?
Short Answer: NO
Long Answer: Perhaps the number one precaution to take at the start of a deflationary crash is to make sure that your investment capital is not invested “long” in stocks, stock mutual funds, stock index futures, stock options or any other equity-based investment or speculation. That advice alone should be worth the time you [spend to read Conquer the Crash].
In 2000 and 2001, countless Internet stocks fell from $50 or $100 a share to near zero in a matter of months. In 2001, Enron went from $85 to pennies a share in less than a year. These are the early casualties of debt, leverage and incautious speculation.
– Conquer the Crash, Chapter 20
8) Should you call in loans and pay off your debt?
Short Answer: YES
Long Answer: Have you lent money to friends, relatives or co-workers? The odds of collecting any of these debts are usually slim to none, but if you can prod your personal debtors into paying you back before they get further strapped for cash, it will not only help you but it will also give you some additional wherewithal to help those very same people if they become destitute later.
If at all possible, remain or become debt-free. Being debt-free means that you are freer, period. You don’t have to sweat credit card payments. You don’t have to sweat home or auto repossession or loss of your business. You don’t have to work 6 percent more, or 10 percent more, or 18 percent more just to stay even.
– Conquer the Crash, Chapter 29
9) Should you invest in commodities, such as crude oil?
Short Answer: Mostly NO
Long Answer: Pay particular attention to what happened in 1929-1932, the three years of intense deflation in which the stock market crashed. As you can see, commodities crashed, too.
You can get rich being short commodity futures in a deflationary crash. This is a player’s game, though, and I am not about to urge a typical investor to follow that course. If you are a seasoned commodity trader, avoid the long side and use rallies to sell short. Make sure that your broker keeps your liquid funds in T-bills or an equally safe medium.
There can be exceptions to the broad trend. A commodity can rise against the trend on a war, a war scare, a shortage or a disruption of transport. Oil is an example of a commodity with that type of risk. This commodity should have nowhere to go but down during a depression.
– Conquer the Crash, Chapter 21
10) Should you invest in cash?
Short Answer: YES
Long Answer: For those among the public who have recently become concerned that being fully invested in one stock or
stock fund is not risk-free, the analysts’ battle cry is “diversification.” They recommend having your assets spread out in numerous different stocks, numerous different stock funds and/or numerous different (foreign) stock markets. Advocates of junk bonds likewise counsel prospective investors that having lots of different issues will reduce risk.
This “strategy” is bogus. Why invest in anything unless you have a strong opinion about where it’s going and a game plan for when to get out? Diversification is gospel today because investment assets of so many kinds have gone up for so long, but the future is another matter. Owning an array of investments is financial suicide during deflation. They all go down, and the logistics of getting out of them can be a nightmare. There can be weird exceptions to this rule, such as gold in the early 1930s when the government fixed the price, or perhaps some commodity that is crucial in a war, but otherwise, all assets go down in price during deflation except one: cash.
– Conquer the Crash, Chapter 18
……….
For more on deflation, download Prechter’s FREE 60-page Deflation Survival eBook or browse various deflation topics like those below at http://www.elliottwave.com/deflation.
*What happens during deflation?
*Why is deflation bad?
*Effects of deflation
*Deflationary spiral
*And much more in Prechter’s FREE Deflation Survival Guide.
Copyright © 2009 Robert Prechter
Editorial Archive
Bio: Robert Prechter has written 13 books on finance, beginning with Elliott Wave Principle in 1978, which predicted a 1920s-style stock market boom. His 2002 title, Conquer the Crash, predicted the current crisis. Prechter’s latest interest is a new approach to social science, which he outlined in Socionomics—the Science of History and Social Prediction published in 2003. In July 2007, The Journal of Behavioral Finance published “The Financial/Economic Dichotomy: A Socionomic Perspective,” a paper by Prechter and his colleague, Dr. Wayne Parker. Prechter has made presentations on his socionomic theory to the London School of Economics, Georgia Tech, MIT, SUNY and academic conferences.
contact information
Robert Prechter | P.O. Box 1618 Gainesville, GA 30503
800-336-1618 Toll Free | 770-536-0309 Phone | 770-536-2514 Fax
>Yes, I listened to it five times and will probably listen to it another five times.
sumi
Coming Deflation .. great FREE article by Robert Prechter . . .
Download your 60-page Deflation Survival Guide now:
http://www.elliottwave.com/a.asp?url=/deflation-survival-guide.aspx&cn=5b
.
very nice interview !!! . . a long listen . . .
but well worth it !!!
Robert R. Prechter, Jr.
CEO of Elliott Wave International and Author
Audio interview with Jim Puplava on Financial Sense
http://www.financialsense.com/Experts/2009/Prechter.html
Note: Past Financial Sense interviews are also included in the above link at the bottom of the narrative.
what line ??
it automatically highlights URLs.
>blasher, I had to leave out that line. How did you get the Elliot Wave International highlighted?
TIA,
sumisu
yep! . . . good stuff . . . get your own FREE Elliott Wave International
articles and and Commentary here: Elliott Wave International
.
Efficient Market Hypothesis:
True "Villain" of the Financial Crisis?
by Robert Folsom, Elliott Wave International | August 28, 2009
http://www.financialsense.com/Experts/ewave/2009/0828.html
Editor's Note: The following article discusses Robert Prechter's view of the Efficient Market Hypothesis.
When a maverick idea becomes vindicated, there's a good story to tell. It usually involves a person (or small group of people) who courageously challenge the orthodoxy of the day -- and, over time, the unorthodox yet better idea prevails.
A "good story" of this sort has surfaced during the current financial crisis. A chapter of the story appeared in a recent New York Times article, "Poking Holes in a Theory on Markets." The theory in question is the efficient market hypothesis (EMH), which the article suggested is so hazardous that it "is more or less responsible for the financial crisis." This quote tells you most of what you need to know:
"In the last decade, the efficient market hypothesis, which had been near dogma since the early 1970s, has taken some serious body blows. First came the rise of the behavioral economists, like Richard H. Thaler at the University of Chicago and Robert J. Shiller at Yale, who convincingly showed that mass psychology, herd behavior and the like can have an enormous effect on stock prices — meaning that perhaps the market isn't quite so efficient after all. Then came a bit more tangible proof: the dot-com bubble, quickly followed by the housing bubble. Quod erat demonstrandum."
In case your Latin is rusty, Quod erat demonstrandum means "which was to be demonstrated." Its abbreviation (QED) appears at the conclusion of a mathematical proof. In this case, the massive financial bubbles of recent years are the proof that refutes the efficient market hypothesis, which argues that markets move in a "random walk" and are not patterned.
Similar articles in the financial press have reported the demise of the EMH. Just this week an Economist magazine blog included this bold declaration:
"No one has yet produced a version of the EMH which can be tested and fits the evidence. Thus, the EMH must logically be discarded, as a valid hypothesis must be testable."
QED, indeed -- I agreed years ago that the random walk was implausible. But I didn't come to this view because of behavioral economists, although their work over the past decade has certainly been valuable. Instead, I was persuaded by the work of someone who first challenged the financial orthodoxy more than three decades ago, specifically April 1977. As a young technical analyst at Merrill Lynch in New York, his research circulated among several of Merrill's clients. His name for these studies was the Elliott Wave Theorist: the April '77 study was a detailed analysis of the 1975-76 stock market, which offered this comment on the random walk model:
"If market moves are arbitrary (as the random walk proponents suggest), then internal components would rarely 'make sense' mathematically, and then only by statistically insignificant fluke occurrences. However, there seems to be enough evidence that mass psychology, as recorded in the Dow Jones Industrials, form patterns that are uncannily interrelated....At least this much can be fairly reliably stated as a result of this work: This idea that the market is a 'random walk' is probably false."
Robert Prechter left Merrill soon after; he has published the Elliott Wave Theorist in every month since. Every issue has, in one way or another, "convincingly showed that mass psychology, herd behavior and the like can have an enormous effect on stock prices."
So while there may be a good story to tell about behavioral economists, I trust you see why I believe there is a vastly better one to tell.
The "enormous effect" of "mass psychology" and "herd behavior" is exactly what explains the financial downturn that began in late 2007. Prechter's Elliott Wave Theorist anticipated the crisis and warned subscribers beforehand. Likewise, he alerted them to the bear market rally that began last March.
For more information from Robert Prechter, download a FREE 10-page issue of The Elliott Wave Theorist. It challenges current recovery hype with hard facts, independent analysis, and insightful charts. You'll find out why the worst is NOT over and what you can do to safeguard your financial future.
Copyright © 2009 Robert Folsom
Here's a neat video showing someone quickly using Elliott Wave Principles
on some charts he just looked at for the first time.
This is an older video (3-yrs), so it would be interesting to go back
and see if his predictions came true!
Click here to go to my page to see the video: http://bit.ly/14Dtsp .
.
Forecast from Elliott Wave International's president Robert Prechter in his April 2009 Elliott Wave Theorist (excerpt):
"What to Expect in Wave 2 -- Wave 2 could carry the Dow as high as 10,000... Wave 2, regardless of its extent, should regenerate substantial feelings of optimism. At its peak...the government will be taking credit for successfully bailing out the economy, the Fed will appear to have saved the banking system, and investors will be convinced that the bear market is behind us. Be prepared for this environment; it will be hard for most investors to resist. The perverse result of wave 2 will be to get people even more heavily invested than they already are, just before wave 3 starts."
We're not there yet...
So, could this market continue to climb higher on nothing but more hot air?
{ thanks! to 'trw12' }
You can get the whole thing Free PLUS
Prechter's new: The Bounce Is Aging, But The Depression Is Young
All FREE right here: http://www.elliottwave.com/r.asp?acn=5b&rcn=aa38a&dy=aa082009a&url=/affiliates/featured-commentary/depression-is-young.aspx
.
A very good article on Prechter's latest prediction . . .
he is calling for a Bear move even bigger than the last.
He he was right in July 2007 and again in Feb-2009 when he called for a Bull move:
a good read: http://bit.ly/VGdb0
.
yeah! .. it's a FREE Week again of Elliott-Wave Principles
Just click on this link and register for FREE:
http://www.elliottwave.com/r.asp?rcn=jsgrphcfjsfw0907&url=http://www.elliottwave.com/wave/freeweek-fjs.aspx&dy=bso-bt&acn=5b
NOTE: ... this site is always FREE to Register, but this week you'll have access to everything not normally Open to Free registerers. The Free stuff is always great! .. but this coming week it will be even better !!
WoW! .. checking back on my GE prediction ...
Elliott & I called it pretty good !!
LOL
cents this stock is under a buck it is probably this might be a waster of time but WTH lol
FNSR Chart
I am going to call this a ABC Pattern it could be a 5 wave impulse but as of now who knows ...
off the March low a Nice A wave measures .54 cents so an C Wave with a 1.618 extension would give me an .88 and a 2.168 extension would give me an 1.17 for wave C but where the hells does wave C start lol ...
So I am guessing that Wave B was a Irregular flat pattern ...
An Irregular Flat the A wave will retrace 38 percent of the move and then the B wave turn back in the direction of the prevailing trend and make a new price extreme ... C wave kicks in going the other way and usually measures 1.618 times the A wave that began the pattern .. (.75 -.54 = .21 x 1.618 = .34 ... so .90 -.34 = .56 )... so .54 close enough ???...
{.54 + .88 = 1.42}
{.54 + 1.17 = 1.71}
the 1.71 is the next resistance .....
lol well let see how this guess works ....
looking for more upside from here...
link back
I probably count it like this
if if works out to be a ABC then a A=C with a 1.612 Extension would give u a target of around 26 ...
if the pattern works out lol
if I was trading it I put a stop @ 18.90 ... IMO then I guess would be wrong
lol The rule is a pain in the ass ...
doh! .. that's right . . you told me that before ...
well ... we'll see how SMN goes from here.
LOL
Thanks !!!!!!!
4 can not over lap 1 ....
Waves 1, 2 and 4 cannot overlap except by 15% of Wave 2 with leveraged securities, and then only for a maximum of less than two days.
IMO wave 2 should not over lap 1 either except in a Leading Diagonal ...
Thanks! .. here's my take on that . . . ...
Auto-Refreshing for SC.com members:
Fixed record of original Drawing today:
Thanks! for sharing .. we'll be watching. /e
Thanks! sumisu . . . good article . . . .
also see here on profiting from Gold because of it:
http://www.elliottwave.com/a.asp?url=/club/gold-silver/default.aspx?code=32540&dy=ccga&cn=5b
10 Things You Should and Should Not Do During Deflation
by Robert Prechter, President, Elliott Wave International
June 19, 2009
http://www.financialsense.com/Experts/ewave/2009/0619.html
interesting. Thanks!
"the wave concept" can apply to any stock . . .
though CDIV being such a tiny stock
may preclude the eWave showing what "the masses" are doing.
Trying to understand the wave concept.
Has anyone looked at CDIV? Could it apply? Has had a huge volume increase over the past three weeks, consolidated nicely last week and now looks poised to go up again.
yep! .. looks good to me ... then I think it weakens
due to fundamentals as well . . .
so that is inline with what your eWave is predicting.
AND ... here is the Elliott Wave Chart for QQQQ and my Commentary on it ...
QQQQ eWaves
OK, here's a much better attempt at Elliott Wave drawing ...
here's my DOW eWave Chart:
Hi 'biomanbaba' .. thanks! for stopping by . . .
I checked out your nice board as well.
I like your golf swing .. LOL
Good Luck !!!
'rayrohn' was right! ... Wave-4 couldn't go lower than Wave-1 ...
and it didn't!
It pays to learn Elliot-Wave !!
Read the iBox of this Board and learn it !!
hey! .. anyone notice how GE Hit my Elliott Wave Target ...
PERFECTLY! and then Bounced.
WoW! .. even I am amazed.
Nice Charts 'rayrohn' .. thanks for participating! /e
lol these don't alway work out
One minute Chart of URE
but on a one basis the next move should be down
WFC Chart
so far is has the look of a impulse or 5 wave and currently in wave 4... that falling wedge looks ripe lol have a target of 34 if it breaks to the upside ...
I don't buy these until they break and keep the stop tight in case it a head fake lol
lol E-wave is a pain in the ass !!!!
but when it works it is a wonder lol
I usually look for impulse wave (1-5) they are usually easy to spot... Consolidations are hard to count and usually I have a hard time figuring out when they are over....
E-wave work best with index's or stock with a lots of volume large floats ...
BTW most of the time I am wrong lol so now u know how much I know
LOL ... that's why I'm just the moderator ...
I agree and stated .. EW is hard to master and
everyone does it slightly differently.
Yes .. maybe we get a massive turnaround and my wave-4 comes way Down.
LOL
Thanks for your input.
http://elliottswave.blogspot.com/
The Elliott Wave Principle
In the 1930s, Ralph Nelson Elliott, a corporate accountant by profession, studied price movements in the financial markets and observed that certain patterns repeat themselves. He offered proof of his discovery by making astonishingly accurate stock market forecasts. What appears random and unrelated, Elliott said, will actually trace out a recognizable pattern once you learn what to look for. Elliott called his discovery "The Elliott Wave Principle", and its implications were huge. He had identified the common link that drives the trends in human affairs, from financial markets to fashion, from politics to popular culture.
Robert Prechter, Jr., president of Elliott Wave International, resurrected the Wave Principle from near obscurity in 1976 when he discovered the complete body of R.N. Elliott's work in the New York Library. Robert Prechter, Jr. and A.J. Frost published Elliott Wave Principle in 1978. The book received enthusiastic reviews and became a Wall Street bestseller.
In Elliott Wave Principle, Prechter and Frost's forecast called for a roaring bull market in the 1980s, to be followed by a record bear market. Needless to say, knowledge of the Wave Principle among private and professional investors grew dramatically in the 1980s. When investors and traders first discover the Elliott Wave Principle, there are several reactions:
- Disbelief that markets are patterned and largely predictable by technical analysis alone
- Irrational Exuberance at having found a crystal ball to foretell the future
- And finally the correct and useful response: Wow!, here is a valuable new tool I should learn to use
Just like any system or structure found in nature, the closer you look at wave patterns, the more structured complexity you see. It is structured, because nature's patterns build on themselves, creating similar forms at progressively larger sizes. You can see these fractal patterns in botany, geography, physiology, and the things humans create, like roads, residential subdivisions and, as recent discoveries have confirmed, in market prices.
Natural systems, including Elliott wave patterns in market charts, grow through time, and their forms are defined by interruptions to that growth.
Here's what is meant by that. When your hands formed in the womb, they first looked like round paddles growing equally in all directions. Then, in the places between your fingers, cells ceased growing or died, and growth was directed to the five digits. This structured progress and regress is essential to all forms of growth. That this punctuated growth appears in market data is only natural as Robert Prechter, Jr., the world's foremost Elliott wave expert and president of Elliott Wave International, says, Everything that thrives must have setbacks.
.
.
The first step in Elliott wave analysis is identifying patterns in market prices. At their core, wave patterns are simple; there are only two of them: impulse waves, and corrective waves.
Impulse waves are composed of five sub-waves and move in the same direction as the trend of the next larger size (labeled as 1, 2, 3, 4, 5). Impulse waves are called so because they powerfully impel the market.
Corrective wave follows, composed of three sub-waves, and it moves against the trend of the next larger size (labeled as a, b, c). Corrective waves accomplish only a partial retracement, or "correction," of the progress achieved by any preceding impulse wave.
As the figure to the right shows, one complete Elliott wave consists of eight waves and two phases: five-wave impulse phase, whose sub-waves are denoted by numbers, and the three-wave corrective phase, whose sub-waves are denoted by letters.
What R.N. Elliott set out to describe using the Elliott Wave Principle was how the market actually behaves. There are a number of specific variations on the underlying theme, which Elliott meticulously described and illustrated. He also noted the important fact that each pattern has identifiable requirements as well as tendencies. From these observations, he was able to formulate numerous rules and guidelines for proper wave identification. A thorough knowledge of such details is necessary to understand what the markets can do, and at least as important, what it does not do.
You have only just begun to learn the power and complexity of the Elliott Wave Principle ... so, don't let your Elliott Wave education end here. Join Elliott Wave International's free Club EWI and access the Basic Tutorial: 10 lessons on The Elliott Wave Principle and learn how to use this valuable tool in your own trading and investing.
General Elliott-Wave paraphernalia ...
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