I typically show them charts like this, where, as you can see, just by applying very basic technicals you can see that this stock ( SQ ) has a pattern of what can only be described as euphoric run-ups, followed by intense profit taking and shorts stepping in. I missed the first two short opportunities (wave 1/3) as I was patiently watching the price action. After seeing shares rally +1% per day in June and seeing the price action near the top begin to fade (wave 5), I entered a short (via puts) on 6/22 and am currently still in the trade.
I'm up ~145% as of 6/27/2018. Planning on closing this position when shares hit about $57-$55 (may close sooner depending on ).
Long term, a company like SQ is solid, but I often say "watch out for euphoric run-ups, they end the same way every time". Just go check out a chart of AMBA or BTC .
The first idea published, just wanted to share some of my thoughts.
Let me know what you think :-)
I still suspect some more weakness before earnings, at which time I will look at call options.
Just opened the 9/7/18 $85 Puts.
Wave 4 cannot overlap wave 1, except in diagonal triangles and sometimes in wave 1 or A waves, but never in a third wave. In most cases there should not be an overlap between wave 1 and A.
What's more important for me is recognizing the "pattern of investor habits" (which EWT tries to capture): in this case, those longs were nervous as shares were hovering at the ATH (natural resistance level). All it took was a little bit of selling for the bulls to jump ship.
I just took advantage of the "weak hands." For me, this way of thinking is far superior vs. relying on "all the indicators" to give me the "sell" signal.