Unfortunately, many confuse a preferred and alternative EWP count presentation with, “So, all you’re saying is it can go up and down…” No, not at all. Such statements are a failed understanding of our message and the EWP. Namely, we always trade in the direction of the preferred EWP count and keep the alternative as our “insurance policy” if we speculate wrongly. It’s no different from entering a trade and placing a stop loss. In this case, those stop loss levels are based on the EWP’s invalidation levels and your risk tolerance. Ultimately, we are all speculators—people who guess about something uncertain.
For example, while we continue looking for SP6000+ (see our previous update here), we know there will be pullbacks along the way, which must stay above crucial price levels, such as the October and September lows.
Why “insurance”?
Because just like in your daily life, you also have car insurance, for example. Now, your preferred POV is that you will not get into an accident, and most don’t, but you don’t control that as it’s primarily other drivers who get you in trouble unless you drive like an idiot. The same goes for trading: “Your preferred POV is that you don’t lose money, most don’t, but you don’t control the markets and why you have to have stops.”
Meanwhile, we all know but ignore it when we get behind the wheel, and that is the fact that ~50,000 people die in car accidents each year in the USA. Hence, even something as mundane as driving a car is not without risk. So, while we hopefully never have to use our car insurance (but most will, from minor scratches and chipped windows to totaling your car), we must have one, just in case.