I have been using this as a trading model for awhile. Its not perfect but markets act in cycles and those cycles are always acting towards equilibrium. The forces causing markets to downtrend can be seen as more a social problem than an economic problem. Upon hearing the news that Abe
Shinzo had one the elections in Japan I shorted USD/JPY
, I knew that given the volatility
of this pair most economic news spurs spikes, these spikes are mostly bearish
and leads to new trends. From POINT A to POINT B is the initial kick sending the pair into a new bearish
cycle. This cycle could be short or it could be prolonged.
Read more here: http://www.gwu.edu/~umpleby/recent_papers/2007_SRBS_Reflexivity_Theory.pdf