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:
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.