For example, I recently consulted with an expert in Elliott Wave--one of the theres an-order-to-the-universe concepts. He claimed that he was right on about 70 percent of his ideas, but only 30 percent of his trades made money He typically had a very tight stop below his exit to preserve his capital. Quite frequently, the market would take him right out of a position. Thus, he would have to enter three or four times in order to capitalize on the idea. In addition, by the time the market went against him three or four

Other times, he would be right about the idea, but the market would start to move so violently that he felt there was too much risk to take the move. Essentially, this traders problem was confusing what is essentially a setup (i.e., the right conditions with respect to Elliott Wave analysis) with an entire trading system. He had no real entry criteria (as defined in the next chapter), and he had no way of capitalizing on the great reliability of his idea because he got stopped out too often. We corrected both problems with ideas that youll learn about

However, the critical issue is a problem that most investors and traders have-they confuse their setups with a complete trading system. Most investors and traders buy books on their craft that consist of nothing but such setups. If the setups are accompanied by enough best-case examples, then the author can usually convince his or her readers that the book contains the Holy Grail. If you learn one critical thing from this book, it should be that a setup is about 10 percent (or less) of your trading system. Most people will place 90 percent of their emphasis on finding the right setups, but setups are actually one of the least important parts of the system. Lets look at another concept-fundamental analysis-to help

Fundamental analysis simply gives you a number of conditions which, when favorable, suggest that the market is ripe for entry on the long or the short side. Those conditions might mean that the market is overvalued or undervalued because of supply-anddemand conditions. However, fundamentals do not give you anything about timing--they simply indicate that conditions are ripe (i.e., set up) for an entry at some time in the future. The actual market move might not occur for months after the signal is ripe for a m o v e . To better understand what a setup condition means, lets talk about the four phases of entry into the market. Generally, every trader or investor should give some thought to each of these four phases. THE FOUR PHASES OF ENTRY