Stocks Analysis by Dr. Arnout ter Schure covering: S&P 500. Read Dr. Arnout ter Schure 's latest article on Investing.com
using the Elliott Wave Principle . The EWP allows us to identify the potential paths the market can take based on known patterns, which must adhere to specific price-based rules. Since we cannot predict an uncertain future, the EW can help us identify the most likely path.
Figure 1 below shows the most likely path we have identified for the SPX, whereas Figure 2 shows the stock market's possible alternative route. Both ultimately point higher as at least one wave up is still missing to the upside from the August 5 low. Namely, we always trade in the direction of the preferred EWP count and keep the alternative as our “insurance policy” if we speculate wrongly. It's no different from entering a trade and placing a stop loss. In this case, those stop loss levels are based on the EWP’s invalidation levels and your risk tolerance. Ultimately, we are all speculators—people who guess about something uncertain.
Thus, since we don't control the markets, we must have insurance to minimize our losses. Our analysis is that insurance, the monthly fee you pay for that, is your insurance premium. Once you see it that way, you understand why trading uninsured is not intelligent when speculating.
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