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TRADING STRATEGY QUESTION:

Q: "When you set your stop loss, what do you consider most important?"

ANSWERED BY GLENN NEELY:

A: Once you enter a market, the stop-loss level you choose is the most critical step (and for many, the most difficult) in the trading process. It will decide whether you get stopped out too early, whether you are risking too much of your capital on a single trade and whether you give back too much of your profits following a good run.

I searched for the answer to this question for over 20 years and finally began to arrive at some conclusions within the last 5 years, which has evolved into my NEELY RIVER trading technology. The only way you can place orders at the correct point in an uptrend or downtrend is to understand which group is "in charge" of that trend. How do you do that? According to Neely River theory, there are only three ways to trade an uptrend and three ways to trade a downtrend, no matter who you are and no matter what system or philosophy you favor.

If you believe the market is in an UPTREND:

• You can attempt to pick the top, which requires you sell into new highs.
• You can be a trend follower, which means you are buying into new highs.
• The last way you can trade an uptrend is by buying market pull-backs AFTER a suspected low has occurred (somewhere in the 33-66% retracement area).

If you believe the market is in a DOWNTREND:

• You can attempt to pick the bottom, which requires you buy into new lows.
• You can be a trend follower, which means you are selling into new lows.
• The last way you can trade a downtrend is by selling market pull-backs AFTER a suspected high has occurred (somewhere in the 33-66% retracement area).

Click this link to continue reading Glenn Neely's answer: 

https://www.neowave.com/qow/qow-archive-105.asp
 

 

WAVE THEORY QUESTION:

Q: "Which works better, analyzing the smallest time frame and building up, or the largest time frame and working down?"

ANSWERED BY GLENN NEELY:

A: This is an extremely important question sent in by an anonymous, European client. Nearly everyone who studies wave theory is tempted to start from the smallest time frame and work their way up, as if they were constructing a building. Unfortunately, as is usually the case with markets, whatever feels right is usually wrong.

Until a larger structure is nearing completion, structure on smaller time frames can be ambiguous, presenting multiple scenarios or leaving the analyst with no logical options. Once a larger pattern approaches conclusion, then smaller structure will begin to make sense, but only in the context of the larger scenario. When a larger pattern appears to be concluding, you can bet the smaller time frame will find ways to stretch out its conclusion in ways never imagined. That is why it always takes a market longer to top or bottom than anyone expects.

So, to answer the question, it is never appropriate to build wave counts from the bottom up, but should always be started from the longest time frame possible first.

Click this link to continue reading Glenn Neely's answer:

https://www.neowave.com/qow/qow-archive-75.asp