Question of the Week: 10/31/2007
If NEELY RIVER technology allows one to trade effectively without forecasting, does wave analysis offer any advantage?
Great question! Every market technique has its advantages and disadvantages. One of the advantages of wave theory is it provides the user tools to pinpoint major market turns. If you need to plan far into the future, that can be a tremendous benefit. For example, knowledge a major top was forming in the S&P in 2000 allowed me to hedge my mother's stock portfolio throughout the 2000 to 2002 bear market. Instead of suffering a 50% decline in value, as many did, her account was UP nearly 50% during the same period.
Unfortunately, as a market moves away from a major turn, wave structure can be indecipherable for extended periods, which is one of the disadvantages of wave theory. For example, wave structure was mostly unclear from 2003 through 2006. At that time I could only predict the S&P would trend sideways-or-up, but I could not specifically predict day-to-day, week-to-week or even month-to-month action.
When wave structure is not clear that is when NEELY RIVER can be very useful. It allows you to safely trade a market having no knowledge of what will come next. The purpose of Neely River is to enter a market at an inflection point, wait for a reaction, then lower risk to zero. At that point it no longer matters what happens next. If the inflection point turns out to be a top or bottom, you'll have a great trade. If not, you'll breakeven. If your goal is to make money trading, it doesn't get much better than that.
Elliott Wave and NEoWave are all about predicting future market behavior, which is great when markets are near the end of a trend and predictable. Neely River is all about trading technology, not forecasting, which is perfect for the 70-80% of the time a market is NOT at the end of a trend and is not predictable.
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