Why Do Traders Really Lose Money? Answer: It's Not the Market's Fault

And 1 FREE course on how to help you stop self-sabotaging "good enough" trade plans

By Elliott Wave International

I have always been a "who cares about the odds" kinda person. Meaning, if someone tells me the likelihood of succeeding at, say, learning to skateboard at 40, are low, it just makes me want to try it more. Otherwise, why would I say yes to a marriage proposal to someone I met online, who lives in a farm in rural Georgia, 3 months into us dating amidst a global pandemic?

If you believe Wall Street's statistics about the odds of success as a trader, yet still choose to speculate in the financial markets anyway, a part of you must be of that same "odds-schmods" mindset. Because according to the mainstream experts, the probability of traders losing money in the long run is between an abysmal 85% and 95%.

Are markets simply too unpredictable? Are price trends too random? Are "nefarious practices" of some traders throwing the entire system off track? Is making a profit at trading simply a matter of luck?

If anyone has the answer to these questions, it's a 25-year veteran of technical market analysis, Jeffery Kennedy. For a quarter century, Jeffrey helmed the wheel for a multitude of educational publications and services here at Elliott Wave International, where he brought his decades of wisdom and hard-won lessons to bare for a generation of traders and investors alike.

Jeffrey confronted the validity of the 95% failure rate with this counterclaim: 80% of the time, active traders and investors select a winning position. In other words, most of the time all checkered flags are a "go." The failure rate starts to creep up when traders stay in the market too long with the expectation of turning a "good enough" profit into a cinematic windfall.

In other words, the problem isn't an irrational market. All too often, it's investors and traders' irrational greed. And the antidote to greed is discipline to avoid one common mistake.

For Jeffrey, there is one discipline that goes above all others to facilitate successful set-ups. Before we say it out loud, let's see if you can figure it out from this pair of Elliott wave lessons from Jeffrey's EWI archives.

First, Big Board sports apparel pacesetter Nike, Inc. (NKE).

On December 16, 2021, Jeffrey presented this chart of NKE, which showed prices engaged to the downside after having completed a five-wave rally. From EWI's Trader's Classroom lesson on Dec. 16:

"If we have indeed finished a larger five wave move up from the 2020 low, then we're looking to head all the way back down to 125."

From there, Nike deflated like an Air Jordan basketball on a bed of nails, plummeting below 125 in May 2022 and continuing to fall before staging a small rebound into August of last year. Then, on August 31, Trader's Classroom revisited Nike Inc. to confirm the rebound had unfolded as a countertrend move, and the current weakness was likely to continue. Jeffrey explained:

"The selloff that began in late 2021 is still very much in force.

"Wave patterns support the idea of further decline in Nike down to below 92.20."

From there, NKE persisted lower, reaching Jeffrey's downside objective of 92.20 -- and then some -- late last September.

The second market from Jeffrey's annals isn't a stock, but rather a commodity. In the June 2022 Monthly Commodity Junctures (now Commodity Junctures), Jeffrey showed this chart of feeder cattle. Prices had been rallying off a late spring low, and Jeffrey's analysis called for further advance, into 2023.

From there, feeder prices took off like a rocket into record high territory, which they continue to orbit as of now, in August 2023.

So, what common feature do you notice about these two examples?

The answer: Their price trends were underway before Jeffrey introduced high-confidence set-ups. Which brings us full circle back to the no. 1 discipline he sees as being crucial for successful trades:

Do not pick tops and bottoms.

Jeffrey can't emphasize this rule enough. When you are satisfied with a "good enough" entry after a peak or a bottom has been established, that means that you're satisfied with leaving money on the table and your greed is in check. The second part of this "keep my greed low" trick is to not let yourself get stuck in a good trade for so long that a winner turns into a loser.

In fact, "Do not pick tops and bottoms" is the cornerstone of one of EWI's most requested educational courses, taught by Jeffrey himself and titled "How to Formulate a Solid Trade Plan and Know When to Pull the Trigger."

Normally priced at $99 in our Store, right now EWI is offering this entire 30-minute course FREE! In it, Jeffrey reinforces his golden rule of trading and says:

"Of the 80% of trades I was losing money on, 80% of those at some point or another were profitable. The problem was, I wasn't taking the money off the table when it was there.

"What I finally learned was, I have no desire to buy bottom ticks or sell top picks. I'm just looking to make the cash register ring. Period."

This hard-won lesson is just one of the many insights Jeffrey imparts in the "How to Formulate a Solid Trade Plan" course. In 30 minutes, Jeffrey asks and answers these and many more questions:

• "What are the earmarks of a viable trade set-up?"
• "Where should you place a protective stop?"
• "What is the most optimal risk/reward ratio?"
• "If you have a strong wave count, should you open a position?"

So, if you're an "odds-schmods" person like me, consider this math: 1 renowned technical analyst sharing the wisdom of 25-plus years of trading experience in a 30-minute online video course -- for $0! You can't do better than that.

To watch Jeffrey Kennedy's "How to Formulate a Solid Trade Plan and Know When to Pull the Trigger" -- today, FREE -- simply join the free, worldwide Club EWI community for instant access to this and other Club EWI resources.

Already have a free Club EWI password? Then click here to start streaming the course >>

Stocks: Keep This in Mind About Seasonal Tendencies

"In 1987 and 2000, the month of August presented a great chance to sell stocks"

By Elliott Wave International

Many investors know that some time periods of the year tend to be more bullish for stocks, like the holiday season. Other times tend to be more bearish, like September and October.

However, seasonal tendencies are just that and don't mean the stock market will follow the expected script every year.

That said, an investor doesn't want to dismiss seasonal tendencies, especially when technical factors, such as Elliott wave analysis, align with those tendencies.

Presently, we are entering a seasonally bearish time period, especially when you consider milestone years. Here's a quote from our Aug. 14 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which offers near-term analysis of key U.S. financial markets:

In 1987 and 2000, the month of August presented a great chance to sell stocks. In 1929, the final high came just a few days into the next month, on September 3. At the 2007 stock market peak, several stock indexes topped a few weeks before August, in mid-July, such as the Dow Jones Composite, the Value Line Composite and the small-cap sector.

Looping back to the statement that one should combine one's knowledge of seasonal tendencies with Elliott wave analysis, let's pick out one of those milestone years -- 2000 -- and see what the Elliott wave pattern for the Dow Industrials looked like at the start of September in that year.

This chart and commentary are from the September 2000 issue of the Elliott Wave Financial Forecast, which published July 28, 2000 (The Elliott Wave Financial Forecast provides big-picture analysis and forecasts for major U.S. financial markets):

Our confidence in the short-term picture is very high, which indicates a down September-October for the blue-chip averages.

The Dow rallied less than 1% into the middle of the next week, then plunged 15% into mid-October.]

Of course, not every milestone stock market year is an exact replica of the previous one.

But, as implied, it's important to keep an eye on the stock market's Elliott wave pattern in conjunction with any other indicator.

Frost & Prechter’s book, Elliott Wave Principle: Key to Market Behavior, discusses the value of the Elliott wave model:

The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market’s general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.

You can have free access to the online version of Elliott Wave Principle: Key to Market Behavior by becoming a member of Club EWI, the world’s largest Elliott wave educational community. Club EWI is free to join and allows you complimentary access to a wealth of Elliott wave resources on investing and trading.

Just follow this link to get started: Elliott Wave Principle: Key to Market Behavior – get free and unlimited access..

This article was syndicated by Elliott Wave International and was originally published under the headline Stocks: Keep This in Mind About Seasonal Tendencies. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Here's a "Bold Call" on U.S. Housing Prices (Don't Hang Your Hat on It)

This does not look like a bottom in median existing home prices

By Elliott Wave International

Back in October 2022, none other than Realtor.com asked the question:

Is America in a housing bubble--and is it getting ready to burst?

That was 10 months ago and just like a widely anticipated recession, the feared bursting of the housing bubble has yet to materialize.

Indeed, another real estate sector firm -- Zillow -- has gone out on a limb with this prediction (Fortune, July 28):

In February, Zillow economists made a bold call that U.S. home prices had bottomed...

In the months that have followed, U.S. home prices as tracked by the Zillow Home Value Index have stopped falling, and between February and June rose 4.8%.

Yes, Zillow's forecast has mainly worked out so far, however, let's also keep in mind seasonal and other factors.

Here's a perspective from our July Elliott Wave Financial Forecast, which used another measure to gauge the health of the U.S. housing market (The Elliott Wave Financial Forecast is a monthly publication which covers major U.S. financial markets):

This chart showing the year-over-year change in the median existing home price doesn't look much like a bottom. According to the National Association of Realtors, the median existing home sold for $396,100 in May 2023, a 3.1% decline from May 2022, "marking the largest year-over-year price reductions since December 2011." Recent increases can be attributed to two factors: spring buying, which happens every year, and the run-up in equity prices, which makes people feel wealthier.

So, we'll see what happens after the seasonal bias passes. And, just as importantly (or more so), we'll have to keep an eye on the stock market.

History shows that the housing and stock markets tend to be correlated.

So, if the stock market tanks in a big way, we could have a replay of 2007-2012 on our hands.

Of course, that's a big "if."

One way to gauge the health of the stock market, and thus the housing market, is to keep an eye on the stock market's unfolding Elliott wave pattern.

If you’re unfamiliar with Elliott wave analysis or need to brush up on your knowledge, read Frost & Prechter’s Elliott Wave Principle: Key to Market Behavior.

Here’s a quote from the Wall Street classic:

In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or “waves,” that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.

All that’s required for free access to the online version of the book is a Club EWI membership. Club EWI is free to join and allows members complimentary access to a wealth of Elliott wave insights regarding financial markets, investing and trading.

Follow this link to join Club EWI so you can read the book for free: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Here's a "Bold Call" on U.S. Housing Prices (Don't Hang Your Hat on It). EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Here's What You Need to Know About Earnings Season

Investing based on earnings "is akin to driving down the highway looking only in the rearview mirror"

By Elliott Wave International

Many investors and financial journalists believe that corporate earnings play a substantial role in driving stock market prices.

This headline from a few months ago captures the traditional thinking (Business Insider, April):

Stocks are poised for a big 2024 as corporate earnings stay strong ... [major bank] says

The idea that earnings drive stock market prices seems to make sense. After all, corporations exist to make money, and if they exceed expectations, it seems logical that their share prices should skyrocket. If earnings disappoint, logic suggests that stocks should tank. And, in all fairness, when it comes to individual companies' earnings, they can and do affect prices -- although not always, and not always logically. But when you compare broad market performance with trends in earnings, you start to see a glaring disconnect. Why?

Because investors are not governed by pure logic. They are governed by collective psychology -- which swings from optimism to pessimism and back again, regardless of factors like GDP numbers, unemployment or -- yes, earnings.

Let's make the point by using a historical example from Robert Prechter's must-read book, The Socionomic Theory of Finance. Here's a chart and commentary:

... in 1973-1974, earnings per share for S&P 500 companies soared for six quarters in a row, during which time the S&P suffered its largest decline since 1937-1942. This is not a small departure from the expected relationship; it is a history-making departure. ... Moreover, the S&P bottomed in early October 1974, and earnings per share then turned down for twelve straight months, just as the S&P turned up!

A more recent historical example is from the December 2009 Elliott Wave Financial Forecast, a publication which covers major U.S. financial markets.

... quarterly earnings reports announce a company's achievements from the previous quarter. Trying to predict future stock price movements based on what happened three months ago is akin to driving down the highway looking only in the rearview mirror.

You'll notice on the chart that in Q4 2008, the S&P 500 had its first negative earnings quarter ever. According to conventional logic, stocks should have crashed afterwards.

Instead, a rally started in March 2009, which stretched all the way into early 2022.

If earnings and other factors outside of the market do not determine the trend of stock market prices, what does?

The answer is the Elliott wave model.

If you'd like to learn about Elliott wave analysis, read Frost & Prechter's book, Elliott Wave Principle: Key to Market Behavior. Here's a quote:

Without Elliott, there appear to be an infinite number of possibilities for market action. What the Wave Principle provides is a means of first limiting the possibilities and then ordering the relative probabilities of possible future market paths. Elliott's highly specific rules reduce the number of valid alternatives to minimum.

If you'd like to find out about "Elliott's highly specific rules," you can do so by reading the online version of Elliott Wave Principle: Key to Market Behavior for free.

All that's required for free access to this Wall Street classic is a free Club EWI membership. Also know that Club EWI members enjoy free access to a wealth of Elliott wave educational resources without any obligations.

Join the approximately 500,000 Club EWI members who are already gaining insights into trading and investing from an Elliott wave perspective by following this link: Elliott Wave Principle: Key to Market Behavior(get free access now).

This article was syndicated by Elliott Wave International and was originally published under the headline Here's What You Need to Know About Earnings Season. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.