07/10/10 – EWI’s Newest Service Picks ETFs: Interview with the Editor

And now, there is a new addition to the Flash service line-up: ETF
Opportunity Flash. We caught up with Wayne in his office
and asked him a few questions:

Q: What method do you use when
looking for high-probability trade set-ups?

Wayne Stough: My main approach is The Elliott Wave Principle.
I look for clean, precise wave counts — usually ones that other
analysts can confirm, so there is a general consensus on market
direction. Once the market meets my other criteria for a high-confidence
trade, I send out a Flash recommendation to my subscribers.

Q: How do you define a “high-confidence” trade?

WS: That’s a good question, because no market forecast is ever
guaranteed, whether you use Elliott or some other forecasting
method. Having said that, there are definitely moments when probabilities
(or odds, if you will) strongly suggest a particular move. For
example — and this is just basic Elliott — the Wave Principle
says that markets move in a series of five waves in the direction
of the larger trend (labeled on a chart 1, 2, 3, 4, 5) and three
waves against the trend (labeled A, B, C). Also, there are certain
proportions between these waves that markets often adhere to.
So whether I’m counting a 1, 2, 3, 4, 5 pattern in a rally or
a decline (i.e., in a bull or bear market), I focus on where the
fifth wave should end, according to Elliott wave guidelines.

Once I’ve identified that price termination point, it becomes
a matter of waiting for the market to get there. Fifth waves
come at the end of the pattern and are usually weaker than third
waves. So once I see certain technical indicators diverging (e.g.
the RSI), my confidence grows: We are near the end of the pattern,
and prices are about to reverse. That’s just one example of a
high-confidence situation. But I do suggest a protective stop
with every new Flash alert, in case the forecast doesn’t come
true.

Q: Are you aiming for a particular
percentage gain?

WS: Absolutely. When I send a Flash alert, I’m typically looking
for a 3-to-1 ratio, at a minimum.

Q: Does that always work out?

WS: No. I monitor the recommendation for warning signals that
let me know when a different scenario is unfolding in the charts.
In those cases, I send out another Flash alert suggesting to
lower or raise the stop-loss level, or exit the recommendation
entirely.

Q: They say you love the S&P
Mini as a trading vehicle. Why?

WS: I’d put it differently. I have traded the S&P for a
long time, I understand that market’s nuances, and I like the
leverage and volatility. But while the S&P comes naturally
to me, I’ve also made many Flash recommendations on other markets,
like gold and currencies. So, a better way would be to say that I
love any market that gives me the desired risk-reward
ratio. Now I’m also “looking for love” among
various ETFs.

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Q: If traders expect a bear market,
should they still consider Flash Services?

WS: Absolutely. I think we’re at the cusp of something very
big in the stock market. And this is the time to act. Just keep
in mind that speculating in severe bear markets (or during extreme
volatility) carries additional risks. So be sure you do your
research and know how your financial instruments behave under
these conditions. And anyone who chooses to trade in this environment
must only risk the money they absolutely can afford
to lose.

Q: Who do you think should consider
subscribing to EWI’s Flash Services — including the newest
addition, the ETF Flash?

WS: Anyone who has some risk capital but not enough time or
experience to find their own opportunities. Anyone who understands
and accepts the fact that when you bet your money, there will
be winners and losers. (Sometimes more of one than the other.)
Anyone who knows better than to risk all their capital on a single
recommendation; the old “all eggs in one basket” situation.
I think in terms of quarters: I want all my subscribers smiling
at the end of a quarter.

EWI ETF
Opportunity Flash service now brings you potential
high-probability opportunities in exchange-traded funds
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