Changes In Trade Setups

Changes in Trade Setups.

We would only be recommending a trade setup where a stop loss level is clearly determined before the trade is taken. 

For setups where the stop loss is not clearly defined, the analysis and charts would still show probable direction, (as is the current scenario with Index analyses), but without the buy / sell recommendation.

Setups that would get a trade recommendation are Impulse Waves (clear 5 waves up or down) and Ending Diagonals.

  • Impulse waves tend to have a clear stop loss i.e. below the origin of the 5 wave up on a buy entry.
  • Ending Diagonals too tend to have clear stop loss levels (the level at which wave 5 becomes larger than wave 3).

Triangles, on the other hand, are a lot more fluid, and stop loss levels tend to be unclear.  So we will provide the triangle analysis / outline and readers can decide whether they wish to take the trade or not, based on their own risk parameters and style of trading / investing.

Leading diagonals, would not usually make the cut as the structure of the leading diagonal itself may be unclear.

Eliminating setups that do not have a clear stop loss will reduce the number of trade setups.  This has the advantage of keeping out of losing trades when the market is in a corrective phase, but can be a handicap when the market is trending.

Note the above is for trade setups that have a clear stop loss.  This does not mean other stocks are not good from an investment perspective.  Some other stocks could be as good or even better from an investment point of view, if a stop loss is not required to be maintained.  For that, please read the posts and updates.


Please also read this note on triangles.  It is an important read as triangles occur often and at several possible junctures within the wave cycle (as 4th waves of impulses. And as B waves, X waves, or as Wave Y triangles, in corrections).

The risk with triangles :

  • they can easily morph into flats or they can extend as triangles for long periods.
  • In the event price violates wave C of a triangle, a new wave C would be created, likely without changing the basic structure of the triangle (bullish or bearish)
  • Only until price has exceeded the wave B high, can there be a higher certainty that the thrust up is underway.
  • Awaiting a 5 wave up on smaller time frames after wave E appears complete is a prudent strategy but then there is a risk of missing out on the trade if the thrust is too quick.
  • With completed triangles (i.e. after wave E appears to be complete), if one doesn’t await a 5 wave up on smaller degree, knowing where to put a stop loss is a problem as there is no clear level.
  • Sometimes a bullish triangle can morph into a bearish triangle.
  • But because triangles tend to thrust up (or down) on completion, and provide a good profit potential, even mildly conservative traders find they are worthwhile to trade.