PRICE CYCLE

When trading, start an analysis by asking:

  • What is the trend of the trader’s timeframe?

  • Is it likely to continue or change?

  • If continuation, where are we in the cycle, in particular are we seeing as directional move or correction? If correction, is it a simple or complex structure?

  • If change in trend, what change in trend pattern is the instrument exhibiting?

 

THE TUBBS MODEL

 

 

 

 

 

 

 

 

 

 

 

The Tubbs model gives the trader a road map of market activity as it proceeds from an Uptrend to a Downtrend, from Downtrend to Uptrend, and so on.

After a prolonged Bear market, there is a period of Accumulation. When we have a Breakout, this is the first confirmation that a new bull market may begin. Once the bull market gets underway, we can divide its movements into 3 sub-structures: Up moves (Impulse) - Down moves (Correction) - Sideways. Bull trends are characterized by Higher Highs and Higher Lows.

STAN WEINSTEIN'S STAGE ANAYLYSIS

 

The market must be in an Uptrend before we should enter a long position. The best way to know is to evaluate the market/ stock in terms of Stan Weinstein's stage analysis.

WE SHOULD NEVER LONG STOCKS DURING A STAGE 4 and VERY CAUTIOUS IN STAGE 1 OR 3.

 

 

Stage 1: Basing area.

After several months decline, start sideways trend. Volume lessens (often starts expanding towards end stage 1). 30 week MA begins to flatten out.

 

A constructive consolidation is one that has gone through the proper supply/demand dynamics, which sets the stock up for a line of least resistance. If the stock is under accumulation, the consolidation will represent a period where strong holders ultimately absorb weaker ones. Once the ‘weak hands’ have been eliminated, lack of supply allows the stock to move higher because even a small demand will overwhelm the small supply. Stocks that are under institutional accumulation will rest and consolidate within the context of a long-term uptrend and then continue higher.

 

Stage 2: Advancing phase.

Ideal time to go long when stock swinging out of its base into this more dynamic stage. Breakout above resistance zone and 30-week MA should occur on impressive volume. Usually after initial rally at least one pullback (the less the pullback the stronger the stock).

 

30 week MA usually starts moving up shortly after breakout. Expect price to move two steps forward and one sharp step back – ok as long as above 30 week MA.

 

When angle of ascent of MA slows down considerably and prices closer and closer to MA, stock becomes a hold.

 

Stage 3: Top area.

 

Upward advance loses momentum and stock starts trending sideways.

 

Volume usually heavy and moves sharp and choppy. Prices tiptoes below and above MA on declines and rallies. Keep emotions in check.

 

Stage 4: Declining phase.

 

Stock breaks below bottom of support zone.

@ Stan Weinstein's Secrets for Profiting in Bull and Bear Markets

OLIVER KELL'S CYCLE OF PRICE ACTION

 

You can make informed decisions without seeing anything but the market and its price movements

 

 

 

 

 

 

 

 

 

 

 

 

 

Reversal Extension (Bottoming)
This is generally capitulation and a sign that the market is bottoming.

Price is extended from the 10 EMA

When the stock starts to put in a reversal bar, go long (Heavy volume capitulation on the reversal bar is a key ingredient in this setup.) Initial stops go below the low of the reversal bar area. First profit target is the 20 EMA on the trading timeframe.

 

 

 

 

 

 

 

 

 

 

Exhaustion Extension (Topping)

This is blowoff/euphoria and a sign the market may be topping.

The further you get into an uptrend and the more extensions you get away from the 10EMA the more likely a stock is to re-base.

The second extension from the 10EMA is generally a good place to take profits. My observations have shown me that the second extension from the Daily 10 EMA after a traditional pattern (larger base) often leads to a more sustained top or at longer basing pattern.
If you get a third extension you are often getting late in the intermediate term trend.
 

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