Trading with Elliott Wave and Gann
by David Lamarr
Wave confusion. This is the best way to describe my introduction to the Elliott Wave Principle more
than four years ago. I read the books, started keeping an hourly chart updated by hand and had reasonable
expectations as to the results of my interpretive skills. Initially, I was able to readily identify bottoms and
tops several days after their occurrence and be whipsawed whenever I thought I precisely knew what the
wave count was.
I slowly improved my wave count skills to the point that when I identified a particular wave count, it was
usually correct. The problem still was determining how to label many of the waves.
Elliott waves provide price targets based on the ratios of .618, .5, .382 and, more recently, .236. These
price targets are helpful but difficult to trade with a strong sense of certainty. I discovered the Elliott
wave analysis is highly dependent on the individual's ability to recognize and identify "price patterns."
One strong point of Elliott wave analysis is that it does let you know when you're wrong—i.e., when a
particular retracement is penetrated look for support at the next retracement level.
Intellectually, it's relatively easy to develop a trading strategy. If a .382 retracement appears to halt
downward price movement, then buy. If this level is penetrated, exit the position quickly. Repeat the
process with a .5 retracement. If necessary, repeat with a .618 retracement. The two losses will be small
and the third trade should provide good profits that more than cover the first two losses. Emotionally,
though, I feel this is unworkable for the majority of traders, including myself.