The Economic Crisis No One Saw Coming: A Convenient Untruth

The Economic Crisis No One Saw Coming: A Convenient Untruth


August 9, 2010

By Elliott Wave International

The single most convenient untruth about the 2008 (and counting)
financial crisis is that it was unforeseen. For two years policymakers
have insisted "There was no way to know ahead of time" that
the liquidity boom would come to a screeching halt. Back in November
2008, in fact, the usually tight-lipped Queen of England herself
publicly described the turmoil of international markets as "awful" and
openly asked a panel of experts from the London School of Economics "Why
did nobody notice?"

Her Majesty is right: Most financial authorities did
NOT notice the crisis before it was too late. Comedy Central's "The
Daily Show with Jon Stewart" of all places provided the
most poignant evidence: A March 2009 video montage
shows executives and economists from the world's leading financial
firms repeatedly forecasting continued upside strength in stocks,
plus renewed bull market growth in financials -- right as debt
markets came unhinged and the US stock market headed into a 50%-plus
selloff.

Dubbed the "8-Minute Rap" (after the "18-Minute
Gap" of Nixon's Watergate tapes), the Daily Show video feature
sent an equally powerful message, as the clip
below makes plain.

Yet even as the mainstream authorities failed to detect the
economic earthquake moving below their own feet, somebody did "notice" well
in advance. That person was EWI's president Bob Prechter.

The clip below is from a 2007 Bloomberg interview.
Clear as PLAY, the foreseeable nature of the crisis emerges from
Bob's October 19, 2007 interview.

As the historic trend change began to unfold, Bob issued this
timely insight:

"We've seen the first crack in the credit structure
with a huge drop in commercial paper... These are the harbingers
of a change toward the downside for the stock market, commodities
including oil, and the debt market itself."

Don't believe the convenient untruths. Get objective market
analysis today. Download
this free report that contains valuable market forecasts directly
from the desk of Bob Prechter.

This
article, The Economic Crisis No One Saw Coming: A Convenient Untruth, was syndicated by Elliott Wave International. EWI
is the world's largest market forecasting firm. Its staff
of full-time analysts lead by Chartered Market Technician Robert
Prechter provides 24-hour-a-day market analysis to institutional
and private investors around the world.

7 Ways to Become an Unsuccessful Trader

7 Ways to Become an Unsuccessful Trader

Q&A with an experienced Elliott wave trader reveals seven common trading mistakes.

August 12, 2010


By Elliott Wave International


To be a successful trader demands knowledge.


If you'd prefer to become an unsuccessful trader, you can start by making the following common trading mistakes, detailed by a professional who spent 25 years in portfolio management, trading and forecasting in the financial capital of the world, New York City.


In 2002, Wayne Gorman, long-time Elliott wave trader and current head of trader education at Elliott Wave International, left his 35th floor Manhattan apartment and moved to the quiet of North Georgia. He's been sharing his knowledge and skills with aspiring traders ever since -- in both online seminars and before live audiences around the world.


Wayne graciously agreed to a Q&A about trading mistakes. In his interview, Wayne reveals seven common mistakes traders make.
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EWI: Could you name two mistakes frequently made by stock traders?


Wayne Gorman: (mistake 1) The first big mistake is the flawed logic of extrapolation. Many traders and investors assume that a trend will remain in force until an "event" comes along to change it. But market trends are not like billiard balls on a pool table. This false assumption will put you on the wrong side of the market more times than not, especially at major turning points.


(mistake 2) The second big mistake is to suppose that news events drive market trends. In fact, the opposite is true: economic, political and social events lag market trends.


EWI: What are two common mistakes among options traders?


WG: (mistake 3) One common mistake is to buy puts or calls that are way "out of the money," with no other transactions to compliment them. Unless your timing is absolutely perfect -- and who has perfect timing? -- your chance of success is low. It’s like buying a lottery ticket.


(mistake 4) Another common mistake is to buy options with too little time left to expiration. With less than one month to expiration, the time decay begins to accelerate and the chances of success diminish.


EWI: Please name a frequent mistake among traders who aim to catch the beginning of a particular Elliott wave.


WG: (mistake 5) In the middle of a corrective pattern, it's common to run out of patience while waiting for confirmation of a trend change. You have to give corrective patterns time to unfold before you jump in. This requires discipline, and a solid understanding of the many ways corrective patterns can unfold.


EWI: What's the biggest misconception among traders about using Elliott waves?


WG: (mistake 6) Too many traders think Elliott wave is a trading system that tells you exactly where to enter and exit a particular market. That's the biggest misconception. The reality is that it's an analytical and forecasting tool, which helps you develop and use your own trading system, based on your own personal risk tolerance.


EWI: What technical indicators do you believe traders over-rely on, and why?


WG: (mistake 7) Traders tend to over-rely on momentum indicators such as RSI, Stochastics and MACD to precisely spot turning points. But to paraphrase Mark Twain, markets can stay overbought or oversold a lot longer than either you or I can remain solvent.


EWI: How would you characterize today's market action, and do you teach courses that address this environment?


WG: This is a difficult stock market in the near term. Prices haven't strayed far from where they began in January. The action has yet to break out significantly to the downside or upside. This situation may not last much longer. I can suggest these online courses to deal with the current situation, and to prepare for the next big move:

How to Spot Trading Opportunities, Parts 1 and 2
How to Trade Choppy, Sideways Markets
5 Options Strategies Every Elliott Wave Trader Should Know
Trading the Line – How to Use Trendlines to Spot Reversals and Ride Trends

This article was syndicated by Elliott Wave International and was originally published under the headline Do You Recognize These Six Common Trading Mistakes?. EWI is the world's largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

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Happy Trading!!

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