Intraday Trading Exit Strategy on GLD 08/06/2009

Below you'll find an Intraday Trading Exit Strategy I was able to apply on GLD consisting of Elliott Wave pattern recognition as it was occurring live in the market.

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While I don't claim to be an Elliott Wave expert in any way, in fact I consider myself a beginning student, I often can apply what I have learned to my personal trading.

With that in mind, realize that some of my labeling may be incorrect, as there are various degrees of trend to consider to identify and label each wave correctly.

Still, as I am learning I am able to identify and label waves in real time as best I can. As with any forecasting and technical analysis, there may be unexpected outcomes. That's why having an exit strategy in place on each trade is important in case you are wrong.

Below you will see a chart of GLD from today, 08/06/2009 in the morning hours. What I will explain below is how applying my knowledge of Elliott Wave pattern recognition in real time enabled me to turn a potential losing trade into a profitable trade.

Intraday Trading Exit Strategy GLD

Once the double top formed around 9:15 a.m. I started watching the pullback to try and determine how far the price would decline.

Shortly before 9:30 a.m. you'll notice that an intraday bottom support level was reached. Being just before the opening bell of the stock market regular trading hours, I figured the price could go either way and had no real evidence to either one.

Then, after the open and a brief rise, the price started to decline again, nearing the bottom support level around $94.95 once again. This is when I started to look for, and recognize a possible declining Elliott Wave Pattern unfolding.

Once $94.90 was breached lower around 9:45 a.m., I was able to identify and label a possible wave count as I perceived it. I labeled the second double top near $95.35 as my starting point top and the bottom support level reached near $94.95 at 9:30 a.m. as (1) down.

Next, the next high between $95.15-$95.20 as (2) up. When $94.90 was breached lower near 9:45 a.m. I then labeled the first leg down of wave (3) near $94.97 at 9:40 a.m. as wave "i" down of wave (3).

At this point I was looking for wave "iii" of (3) down as a minimum price level to exit a short position I had. My breakeven point was near $94.60, but I was willing to exit at a loss because my time in this trade was getting near my limit and I wanted to exit soon.

Near 9:50 a.m. at low was reached close to $94.67 and could have been labeled wave "v" down of (3). At this point I placed a mental stop just above $94.80 in case this was wave "v" of (3) down. If the price moved above $94.80, in my mind an uptrend was beginning, but, if $94.80 was not breached higher, then a contracting triangle could be forming with a final thrust lower coming soon.

As the price continued to fluctuate, I was more convinced that this was in fact what was occurring. Instead of exiting my position here (around $94.75) at a loss, I waited for the last move lower.

Another reason for my increased confidence in a possible final move lower was the fact that forth waves are typically consolidation patterns showing indecision. When looking at the chart as it was occurring, and now, you can see that the forth wave was clearly a sign of conjestion compared to the rest of the waves.

Intraday Trading Exit Strategy Elliott Wave Pattern

Wave "v" of wave (3) down finally came and I exited this trade almost perfectly at 10:01 a.m. following through with my intraday trading exit strategy forecast. Without my knowledge of the Elliott Wave Principle from what I have learned through Elliott Wave International, I would have exited this trade at a loss. Instead, I was able to manage the trade and exit with a profit.

Here is an alternate count wave pattern which appears to be more likely of what actually occurred:

Intraday Trading Elliott Wave Alternate Pattern

Of course every trade doesn't always work out as planned, but for intraday traders in particular, an important part of trading is having an intraday trading exit strategy in place and being able to apply it in real time. This of course is true of any time frame of trading, I am only referring to intraday trading here because it is what I do mostly, and identifying patterns in real time occurs frequently with this type of trading. Find out how to use Elliott Wave Analysis in your own trading below:

Learn more about the method that has kept Robert Prechter out of the herd and in the game for more than three decades. His company, Elliott Wave International, has an extremely useful Elliott Wave Tutorial for free online. It’s broken up into 10 lessons across 50 pages, so it’s easy to read and review at your leisure. Details >>

Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

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