Is A Turn Approaching?
We would all like to trade bottoming and topping markets. Here’s one way to do it.
In our modern, automated marketplace, trends can obscure a topping or bottoming formation. Sophisticated new professional side orders have changed how stocks and indexes form tops and bottoms. Many once-common topping and bottoming formations rarely occur in the automated marketplace.
Technical traders need to use alternative analysis tools to properly identify these new patterns. The detrending price oscillator makes it easy and reliable to analyze a cycle of a stock or index to anticipate sudden price action.
THE DETREND INDICATOR
Although the detrending indicator used is called a detrending price oscillator, this discussion goes beyond the normal use of an oscillator and enters the realm of cycle theory.
First, a note here: Cycle theory always uses the “trough to trough” measure to calculate the timeline of a cycle. Peak to peak is never used. This approach provides a more accurate determination of the length of the cycle. Thus, a four- or six-year cycle is trough to trough with one peak between the two troughs (Figure 1).