This chart reveals the pattern of accumulation and distribution on a monthly time frame over the course of the bull and bear market cycles in the 2000's for the S&P500 .
Note how previous modes are important levels into the future, even several years down the road. The market has memory and that may be because technicians like us look at charts and act at old levels.
However it happens, this is a mechanical way to stay on the trend for as long as possible.
Nothing is perfect, but just a few rules and common sense allow for trends to be captured.
1. A trend must have a new high every 5 bars.
2. If the price action is completely above the mode, the trend is in place for the amount of time at the previous mode.
3. If no new high after 5 bars, then a downtrend may have started at the high.
4. The downtrend is in effect if the price is below the mode since the high.
5. Continue the downtrend as long as a new low is made every 5 bars.
6. Exit the trade if the amount of time at the mode expires. Count 1 as the first bar completely below the mode.
Please review my other charts for further clarification.
Tim 3/28/2014 12:04AM EST