Reprinted from Technical Analysis of STOCK S & COMMODITIE S magazine. © 2012 Technical Analysis Inc., (800) 832-4642, http://www.traders.com INTERVIEW Trading With The Elliott Wave Doing The Wave With Jeffrey Kennedy Jeffrey Kennedy is chief commodity analyst at Elliott Wave International (EWI). With more than 20 years of experience as an analyst and trader, he writes and edits Futures Junctures, a premier forecasting package that focuses on Elliott wave analysis of the commodity markets. Kennedy also leads Elliott Wave Junctures, EWI’s newest educational service, and provides daily video lessons on the Elliott wave, technical analysis and trading. In addition to being published in Stocks, Futures and Options magazine, Traders’ World magazine, and The Technical Analyst, he has appeared on Yahoo Finance’s “Breakout” and Business News Network’s “Berman’s Call.” He is also an adjunct instructor in the quantitative and computational finance program at the Georgia Institute of Technology, where he teaches technical analysis. STOCK S & COMMODITIE S Editor Jayanthi Gopalakrishnan and Staff Writer Bruce Faber spoke with Kennedy on October 10, 2012. eff, can you tell us about what back this year, it will be my fourth year you do? teaching there for their graduate-level When I look for a potential I am the chief commodity class in option trading and technical trade, I always begin with J analyst at Elliott Wave Inter- analysis. I teach a portion of that. I national (EWI). I’m pushing love technical analysis. the wave principle. That is 20 years at EWI, actually. I have been my canvas. counting waves for 20 years. I consider How did you get started in this busi- myself an Elliottician, but even though ness? I use the wave principle as my primary I got into it because I thought this the summer of 1993 and have been here technical tool, I am passionate about was the place to be. I was fascinated ever since, and have enjoyed every mo- technical analysis as a whole. I love Steve with Wall Street, and stockbrokers and ment of it. Nison’s work with candlesticks. I love currency traders, the final years I was John Bollinger’s work with Bollinger in college. I wanted to be the guy who Can you tell us about the Elliott wave? Bands. I love J. Welles Wilder’s work really knew what was going on. At the The Elliott wave principle was de- with relative strength index (RSI) and time I didn’t want to be a broker because veloped by Ralph Nelson Elliott in the even Andrew Cardwell’s influence on they basically have marching orders mid-1930s. What he observed was that the RSI as well as Gerald Appel’s mov- that their brokerage house gives them the stock market moves in these recogniz- ing average convergence/divergence to follow. able patterns that are essentially fractal. (MACD). I am familiar with all the great The analyst, on the other hand, seems Basically, the wave principle is a form of names in the industry, and I have been to know what’s going on. It is the stock technical analysis based on pattern recog- fortunate enough to actually meet some market analyst who understands what nition and crowd psychology. Within the of these people over the years. is going to go up and what is going to actual discipline of the wave principle are So even though I am a trained El- go down. That is why I zeroed in on the two types of waves. The wave principle liottician and the wave principle is my analysis side of the business versus sales primarily gives the analyst and trader a primary technical tool, I still find great or being a broker. tool to view price action. That context is value in a lot of the other disciplines that I live near Atlanta and became famil- provided by one of two waves: motive technical analysis has to offer. In fact, I iar with the wave principle and Robert waves and/or corrective waves. teach technical analysis at one of the local Prechter’s organization, Elliott Wave There are five basic or five core wave universities, Georgia Tech. If I can make it International (EWI). I joined them in patterns that I work with as an Elliotti- Reprinted from Technical Analysis of STOCK S & COMMODITIE S magazine. © 2012 Technical Analysis Inc., (800) 832-4642, http://www.traders.com cian. Within the motive wave family, a context for price action. As such, it is there are two waves: an impulse wave not a trading methodology. Analysis is the mastery and an ending diagonal. Within the cor- I go all over the world teaching people of observation. If you rective wave modality or the corrective about the wave principle. I’ve been to are an analyst or an wave family, you have three. You have a India, South Africa, Australia, Singa- zigzag, what we call a flat, and then we pore, Hong Kong. I encounter people Elliottician, you are have a triangle. Those are the five core who, when I ask, “Do you find value in looking at the markets wave patterns that Ralph Elliott identi- the wave principle?” they answer with and theorizing what fied. These patterns again are fractal in “Yes, I love it.” But when I ask, “Do could happen. nature. You can pull up a one-minute you have difficulty trading it?” they also price chart of the S&P and you can see say they do. The reason why is simple. these fives and threes. The wave principle, as it stands, is not a disciplines, they are not going to come Impulse waves, which are motive trading methodology. You are utilizing up with the same results. That is why it waves, develop in five wave structures the wrong tool for the wrong job. takes time, practice, realistic expecta- or five wave forms. Corrective wave tions, and talking to other people who patterns, like zigzag and flats, unfold Then what is it? are experienced. in three waves, which are identified as The primary value of the wave prin- I’ve made a lot of expensive mistakes waves A, B, and C. It is not uncommon ciple, and it says this in the A.J. Frost as an analyst and as a trader, but I have for Elliotticians to hold conversations and Robert Prechter book Elliott Wave also learned some very valuable lessons. using phrases like, “We have a nice Principle, is that it provides a context It is just part of the learning curve with five up here” or “We have a nice five to view price action. Now the wave what we do as traders and analysts. down here.” What we mean is that with principle can be adapted, which is what Again, my heart is in the wave principle. five waves up we know the trend is up. I have focused on as an Elliottician. I I value it greatly, but it takes some under- If we have five waves down, we know think about what Ralph Elliott would standing what it can and cannot do. the trend is down. As a trader, because have done if he had lived another 10 or My primary focus at EWI is not to just I do both, I look for those three wave 20 years. I think he would have been very teach people about the wave principle, countertrend moves, or those corrective aggressive at actually applying what he but how to apply it in a real-world trad- wave patterns. uncovered about the market, more from ing environment. In other words, I look for the zigzags, a trading perspective. That is what I fo- the flats, and the triangles, because what cus on here at EWI. I look at things like You said you liked other technical indi- I like to do, both as an analyst and as a where do you get in, where do you get cators. Do you use them in combination trader, is identify a trending market, and out, and where do you pull the trigger with the wave principle to help you make if it is an uptrending market, I like to on a trade. The wave principle answers entry and exit decisions? focus on buying the pullbacks and wait these questions, but again, it takes time Absolutely! Analysis is the mastery for those corrective waves to unfold. and practice to understand the tool. of observation. If you are an analyst Conversely, in a downtrending market, Now trading, that’s a different conver- or an Elliottician, you are looking at if I see three wave rallies, those are my sation because I am as passionate about the markets and theorizing what could opportunities to sell the market. If the trading as I am about technical analysis. happen. Trading, on the other hand, is reader is simply familiar with those five What I have learned about trading is that more immediate. It is more of a mastery patterns, it will serve them well. [Editor’s it is all about psychology. Some of the of your self, your emotions, your mind, note: Information on those five patterns people I admire the most with regard to and your money. can be found at www.elliottwave.com/ the importance of trading psychology The primary focus of a trader is not club/educational-resources.aspx.] would be Mark Douglas in his book The what could happen, but what is happen- Disciplined Trader, and Van K. Tharp in ing. There is the distinction between a Doesn’t that require a lot of patience? some of his books.