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Mastering Elliott wave theory with Anil Mangal
22
May
Mastering Elliott wave theory with Anil Mangal

 

Anil Mangal is an experienced fund manager, analyst and professional FX traider, specializing on wave theory, especially Elliott Waves. Anil spoke to Maria Goncharova of EXANTE and shared his trading experience using wave theory.

How did you start trading and what was your primary motivation to start?

Actually, let me give you a short introduction, as many people do not know me well. I am from Guyana, in South America, next to Brazil. I have been living in Russia for the last 25 years. I came to Soviet Union at that time to study medicine. I studied it until the collapse of the Soviets. It was the end of my medical career. After that, I started to work in a company that was doing business with Singapore. I worked there for a year and then I opened my own business with their support.

10 years later, I sold the business and went for a vacation to the Caribbean. All the money I have earned from selling my company I put on my account that was within some offshore bank (that offers investment in structured products - Exante note) . The bank started bothering me, saying: “You have all those money lying on your account. You have to do something!”. I said: “No, I will go back to Moscow and start a new business, so I need them on the account”. Days later, my personal manager called me and said: “Actually, you have your account in dollars and the dollar is now losing its value. You may want to put some money in euro?”. I said:” Okay, go ahead!”. So they put some money in euro and 3 months later my manager called me saying that euro is losing its value and he advise me to reconvert. So we did. Later on he called and said: ”We have a professional trading desk with people who will trade for you. So if you agree, please sign the paper allowing them to trade for you using your account.” I did that, and it was my first mistake. My second mistake was that I knew absolutely nothing about trading. I did not even know what the word “pip” stands for so I was not really following what the trading desk were doing. Until one day when they called me and said: “You have a margin call.” I did not know what was that until he started to explaining.

Two days later, I decided that I need to know everything about Forex, and that was the start of my journey. During 3 weeks I surfed the Internet to find someone who will teach me Forex. Eventually I found a guy who was pretty ok and taught me the basic stuff. Then I started to do my own studies. I was studying about 2 years without even trading. In 2 years I started to do open webinars for people in London, where I invited my friends traders. Doing all this, I realized something was missing and I started to study Elliott Waves. I was using Fibs (Fibonacci), trendlines etc, I used them all before, however there was one element in trading that was missing. None of them were working perfect, none of them actually were giving the idea of the direction of the market. All those indicators did not give me the sense of direction. That is when I started Elliott analysis.

Some traders face psychological differences, especially when they switch from the theory to practice. Have you faced something like that before?

Most of psychological problems have to do with money management and your ability to handle risk. I was a businessman, so I had a lot of money so you can understand that my ability to handle risk and risk tolerance in general is very very high. What I did, when I started trading, I started to trade very small. However, I had a change when one of my students, who was a hedge fund manager from Australia, gave me my first real account to trade, which was a half-million dollar. We traded that account mostly together, because I did not have the psychology to trade a half-million dollar, as I traded only 10,000 accounts before.

The biggest problem with traders psychology is that you are putting on a risk something you can not handle. If you think that the money that you can lose is nothing to you or it is small enough that they would not affect you, then you can go to sleep with that trade. Now I am trading investors accounts, these are huge accounts, and I go to sleep with a loss of 3,000 or 4,000 dollars, because it does not bother me anymore. I have had a feel of handling this size but it takes some time to come. So if you are totally new as a trader, you trade on demo account until you can succeed. If you can not succeed in the demo, there is no sense trading live. It is a waste of time. Also, if you put on a trade and you have a slight worry about that trade, take it off.

Exactly my next question. When you see that your trade is not really working or strategy you have chosen is not the best one, do you drop this trade immediately?

My trades are pretty straight. If I am taking a trade, it is based on a very strict pattern. At some point, when the way of that pattern tells me that it is no longer valid, I put the stop and I leave it there. Unless the pattern changes, I do not interfere.

I guess it is just a right time to tell us about your Elliott wave analysis…

Let me start with a very simple introduction. I will not be telling you about all the theory of Elliott waves, you can go and read it. Reading the book and understanding the theory is just the very beginning. Understanding all those patterns, especially the corrective patterns is what you need to do. Understanding how to recognize the corrective pattern is going to be your problem.

I will give you a simple way of how to do it. Elliott took a bunch of charts and he sat down for a long time to study them. He understood that he can recognize the patterns and that patterns repeat themselves. So not to confuse himself, he started to labeling them. For example saying that motive waves subdivide into five waves. So the most important here is to recognize the pattern - you find an impulse, you find a correction and you trade the next impulse. Your biggest problem is going to be the corrective part as it is very complex. All this is an ABC of wave patterns. Elliott was not the first and is not the last to study the wave patterns, however he is the best so far.  

How do you decide which wave is an impulse and which is the correction?

That is an easiest question. Remember you are dealing with a chart. The chart has two axes: vertical and horizontal axes or price and time axes, correspondingly. When you are looking at impulsive waves, you are actually dealing with the price axis - this is pretty fast. When you are looking at corrective waves you are dealing with the time axis - this is long-drawn-out. All traders in the world like price axis and they tend to forget that time axis exist. They tend to forget about the time factor. If you want to become a very good trader, study the time axis and forget about the price. The first thing I give to my students traders is to study the time axis. They need to understand that the most important part of the chart is time axis, because traders get impassioned, they see a move fast and they jump into the top. Then it goes into consolidation and stays there as long as your patience run out. Until you take off the trade for a loss. And then, the next impulse continue. An impulse is a sharp move up and it is in corrective structures. When you got a sharp impulse, unless you are looking at an entire structure, what traders do? So you have an impulse, you have a correction and then goes a very sharp impulse again. If you think it is going to move straight up, you are wrong, because this is a “sea wave” and it is reversing - it is actually coming down. Very few traders can click on “sell” at the top here, unless you are very very experienced.

What is the right time frame to use waves analysis? What would the lowest time frame you would use?

The lowest time frame I have ever used was 15 minutes, because I have a lot of day traders that trade with me and we look for 15 minutes trades. The best time-frame for me personally, 240 and 60 minutes intervals, because they give me an excellent trades that I can be in for a long long time.

Maybe you could also elaborate more on your entry and exit strategies?

It is going to be a little bit difficult. To follow the strategies I am using you have to take a long-term course and practice in my class. By the way it is a six week class, so you can get an idea how long you have to study to understand the strategies that I am using, and to use them yourself. In two words, I find an impulse, I look for a correction and I pick the break up - this is my entry. If I was wrong with the impulse, I misunderstood it - I need to get out of the trade. Very simple! Never be shy to be wrong - the greatest minds in the world were wrong in a lot of things. If you are wrong all the time, stop trading live or if you are wrong while trading demo - stop trading demo too, because this can be distractive. Go back into learning. There are 3 basic things for you to become a good trader. First is the knowledge - you need to have it. Second - to study money management, because that is going to be your biggest problem. You need to know how to handle money and the risk associated to it. The third thing is an experience. That is something nobody can give you. You have to trade and practice a lot until you have it. The practice and the trading should be based on the knowledge. Not on the thing you hear. Do not buy any indicators that people sell to you - it is a complete waste of time. Any of indicators selling out there you can get for free. If you are buying anything, it has to be knowledge or the time that a person spend to teach you. Me personally I do not use anybody’s indicators. The only thing I have on my charts that I use is the MACD.

Can you please tell which settings do you use for MACD? Do you use any other oscillators?

No, I do not use any other. I use the MACD standard settings. MACD is amazing in identifying waves. Everything else is useless. Chart moves in waves and as long as it moves in waves, you have to learn the waves. You need to trade the waves, not horizontal or vertical lines, not any indicators that somebody has created. Try to trade the waves.

Do you use divergence?

Yes, I use that a lot.

Can waves approach be applicable to equity trading?

It works for everything. Personally I trade only Forex, silver and gold. When I looked on the Apple chart for example, I was amazed how simple it could have been if I would trade this chart. You would get a lot of easy trades on this chart using the simple formula I give you: you get an impulse, you get a correction and you trade the next impulse. If you got the next correction, you trade the next impulse. You continue this until you see it starts dying out.

If we wrap up everything you said, what would be the trading suggestion from you?

I suggest you to go to http://www.elliottwave.com/, click to download the Elliott principle book, it is free. Read this book, that is what I did. Then you need somebody to train you identify the wave patterns - that is all. I trained myself to do that. If you will spent two years like me, 10 hours a day doing it and then spending several years actually mastering it - you will succeed.

Source: webinar conducted by EXANTE and TradingView on 27 April 2015. 

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