Simple, I haven't been trading EW as long as Pennies or Git have but I'll give you my perspective on it. I think it is important to note that prior to EW I've traded mainly using patterns and support and resistance with good success. What interested me about EW was the fact that you can get a better idea of where price is heading in terms of targets. There are ways to project targets based on previous waves using fib ratios. Now one of the things that I struggled with in my prior trading methods was where to exit. It seemed like it was hit or miss and more often than not miss. With EW I feel more comfortable holding trades longer because I can project possible ends for the wave sequence as well as count the waves inside of the larger waves and see when they are coming to an end.
One of the major drawbacks I found early on with EW was that it was difficult to define risk. I am the type of person who doesn't like to sit through large drawdowns waiting for the trade to move back in my favor. I like to define my risk and stick with it. I realize now that defining risk was only difficult early on for me with EW because I didn't know how to trade it effectively. It is still a work in progress but I'm becoming much better at defining risk with EW. There are rules that must be adhered to with EW and one way to define risk is to place your stops in areas where your current count would become invalid. So for instance, lets say we are expecting a 5 wave impulse series. The most effective way to trade this scenario would be to watch wave 1 form by counting the 5 wave structure on the smaller timeframe which would make up wave 1. Then you set your entry order on the wave 2 retracement. So typically wave 2 retraces 61.8% of wave 1. Also you can refine your entries by projecting the end of the corrective pattern using the fib ratios. When you see a confluence then you have a good idea of where price will reverse and then we set our entry order there. We can place our stop above/below the start of wave 1 because we know that wave 2 cannot retrace beyond the start of wave 1. There are several different ways to trade EW patterns using the rules as a guide to defining risk.
It definitely takes a lot more time and effort when trading EW theory. You must constantly test your counts for validity and try several different counts before finding one that is actually solid. If your counts cannot withstand heavy testing and criticism then they are wrong. This is probably the main reason why you can put a couple of EW practitioners in a room and each one will have a different count. Now there may be 2 valid counts that emerge but as the waves progress, one of the counts will become invalid. This is one of the things that Pennies, Breen, Qui and I do on skype. We bounce counts off of each other and try to find flaws. This not only helps us weed out the bad counts but it also helps us find the move valid count and learn from our mistakes. Its like writing a paper...you may make a mistake and when you proof read it, you don't see any errors. However, when you ask someone else to proof read the paper they will more than likely find your errors and point them out. Even with a checklist to follow, it is still easy to miss your mistakes and that is why having another set of eyes looking for mistakes goes a long way.
EW is not for everyone. Like I said its a constant battle and learning process. It takes a huge amount of time and effort. But then again what doesn't. One thing that I've learned is that you will get out what you put in. If you want to reap the benefits you gotta do the work simple as that. I'll even admit that I've traded other methods with success that were much easier and less time intensive. However, I like the challenge that EW presents and will continue to work with it. I apologize for the length but I hope this gives you a good perspective.
