Are All Trade Setups Equal ?

Are All Trade Setups Equal ?

No, they are not.

The 5 wave impulse setup is the highest probability of all elliott wave setups.  So the allocation should be biggest for impulse trades.

How much bigger ?

Just as an example, and this is our subjective opinion, and from experience…It is not a hard and fast rule.

If Rs. 10 lakhs is allocated for a 5 wave impulse trade, then 25% of that be allocated for a non-impulse wave setup.  So for a triangle setup or a ending diagonal setup, that amount should be Rs. 2.5 Lakhs each.  So basically a 5 wave impulse setup gets 4 times the capital than other setups.

This ratio is from our own experience, and can be adjusted from person to person.

We find 5 wave impulses are excellent setups both in terms of probability and time.  An initial 5 wave up means after a period of correction, there will be another 5 wave leg up.

Ending Diagonals and Triangles are good too.  But ending diagonals can fail, while triangles can extend for lengthy periods without breaking out (and by then one may become exhausted with the waiting).

What about capital allocation per trade ?

This is usually based on the stop loss.  Risk should not be more than 1 ~ 3% of capital per trade or whatever has worked for you in the past.  This means at worst, 33 consecutive losing trades are required to wipe out capital entirely (if we assume risk of 3% of capital per trade).  This 1 ~ 3% risk is an accepted formula for most traders globally.  Some traders are ok to go higher, upto 5%, but one should have sufficient trading experience to do this.