Elliott Wave InternationalmyEWISocioniomics.Net
Home > Trading Lessons

A Personality Test for the Markets - 3 Examples from DTV
It's a far cry from Freud, yet Jeffrey Kennedy's method of "market personality" diagnosis can help you learn to make more accurate trades.

By Jill Noble
Thu, 21 Mar 2013 11:45:00 ET
Add to Facebook Add to Twitter Email to a friend Printer Friendly

Stock market analysis may have little to do with analysis of the Jungian sort. Yet one point of commonality did occur to me when I read that the American Psychiatric Association is set to publish its revised diagnostic manual next month.

Market analysts and psychoanalysts alike strive to find the best way to categorize their subjects, to plan the best course of action for successful outcomes. Professionals in both fields know that to correctly diagnose "personality" is a primary concern.

If you spend time studying technical analysis, it can be incredibly helpful to understand the concept of market personality. According to Senior Analyst Jeffrey Kennedy (Editor of Elliott Wave Junctures), financial markets can show their personality on price charts. 

"Financial markets are as different as people. Just as likes and dislikes vary from person to person… financial markets exhibit their own distinct personalities by favoring certain wave patterns over others."

Sometimes you may feel like your price charts are impossible to diagnose. You may know how to count and identify Elliott waves, but not how to move forward with confidence. Yet even the craziest-looking market may present trading opportunities if you know how to observe its patterns objectively.

The following lesson is adapted from Jeffrey's June 5, 2012 Elliott Wave Junctures video, aptly titled "Market Personality":

If you’re going to trade a specific market, I encourage you to spend some time with it and learn its personality before you start trading it.

A good example of precisely this kind of market personality comes from Direct TV's price chart (ticker symbol DTV). In Elliott wave analysis, there are three types of triangles: contracting, barrier, and expanding. While contracting triangles are fairly common, the expanding triangle is actually a rare pattern that forms less than 10% -- maybe even less than 5% -- of the time.

But if you look at this one stock's price charts, you will see a strong tendency for the expanding triangle to form. For example, the weekly price chart shows a very nice expanding triangle -- waves a, b, c, d, and e -- along with the thrust following that triangle:
 


One also shows up on the daily price chart:

 
... and another expanding triangle even shows up on the 10-minute chart:



What's surprising is that as rare as expanding triangles are, it’s not that difficult to find three really good examples of this pattern on DTV's intraday, daily and weekly charts even though you might not see this pattern at all in any of the other markets you follow. That's part of DTV's personality.

Good questions to ask about other markets then might be:

What are some tendencies of this market?
Does the same pattern recur?

You may find that flat corrections show up more frequently than zigzag corrections in one of your markets, or that .786 retracements are more common than .618 retracements.

If you like to trade bonds on the daily level, what are some of the quirks, the likes or dislikes of the particular bonds you trade? Maybe you have a price chart… and you notice that whenever the market gaps, you see a strong tendency for the market to try to go back and close the gap. Notice that and remember it the next time you see a price gap.

The more you know your market's patterns and rhythms, the easier it will be for you to set up for a high-confidence trade, because when you recognize a wave pattern, you know where you are, and you often know what comes next.

If you spend time with the price charts of your markets, you’ll find that there’s a rhythm to each market. The more time you spend with that market, the more in sync you will be with its rhythm, which I think will give you more confidence in your analysis and trading.


It's one thing to act on someone else's trading ideas. But it's a whole new experience to recognize and act on your own trading opportunities. That's what Elliott Wave Junctures will help you to do -- you will get the education and the confidence you need to start finding opportunities on your own price charts.
 
Elliott Wave Junctures gives you:
  • 3-5 video trading lessons each week
  • Lessons that you can apply across any market and any time frame
  • A teacher who will become your trading mentor 

Real Time Trading
  



Free Video Course


Learn the Why, What and How of Elliott Wave Analysis

Financial media use news and economic events to explain market moves. Steer clear of this misguided approach. Take part in the Elliott Wave Crash Course to learn what really moves the markets.

Default


© 2014 Elliott Wave International

The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading and investing decisions.