The 3 Essential Parts of an Elliott Wave Trade - Part 3

By Elliott Wave International

Would you like to improve your ability to trade -- not only with a clear understanding of the Elliott Wave Principle, but also by learning how and when to act on your wave count?

According to Senior Analyst Jeffrey Kennedy, there are the three key components of a successful trade.

In this final lesson -- adapted from the Visual Guide to Elliott Wave Trading, a No.1 Bestseller on Amazon -- Kennedy explains his third step for a high-confidence trade setup in Caterpillar: Manage the Trade (You can read Parts 1 and 2 by clicking below):

  1. Analyze the price charts >>.
  2. Formulate a trading plan >>.
  3. Manage the trade.


The day following our analysis and entry, CAT fell sharply (see Figure 2.3). As a result, the value of the position increased substantially. In retrospect, it would have been prudent to exit the trade entirely or at least partially the day after the swift decline. However, since the original analysis called for a move below 108.39, I decided to hold the position.

During the next few days, CAT continued lower. On Friday, May 13, 2011, I exited the position for a 336.05 percent return (see Figure 2.4), selling the options that were originally purchased at 86 cents for $3.75 apiece.

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This article was syndicated by Elliott Wave International and was originally published under the headline The 3 Essential Parts of an Elliott Wave Trade [Book Excerpt Part 3 of 3]. 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.