Peaks and Troughs at Trade10.com- The science of trading market momentum for stocks, options, futures and bonds.

Critical Day Analysis

Our critical day analysis is all about trend reversals. We tell you when there is a high potential for a reversal of the short trend and we've been doing it since 1994 with an 80%* accuracy.

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Peaks and Troughs

Identifying the trend of prices and indicators is a very important basis in analyzing price and volume behavior for any underlying security. A simple way of identifying the trend of a plotted price or indicator is to look at the peaks and troughs as time passes.

A rising trend is a series of rising peaks and troughs while a falling trend is a series of lower peaks and lower troughs. When prices move sideways peaks and troughs often move in a trading range and can be studied using channels or envelopes.

Trend reversals signals are given when a peak and trough move opposite to the prevailing trend. When a rising trend of higher peaks and higher troughs is followed by a lower peak and a lower trough, there is a higher risk of a reversal of the price trend if prices continue to fall below the most recently created lower trough.

For a valid signal to occur for a price trend reversal using peak and trough analysis, not only does a lower peak and a lower trough have to occur after a rising trend in prices, but in addition prices must then fall below the previous lower trough to be considered a reversal signal. On the graph above for Lincoln National Corp, the first signal would not be considered a full signal, however the second signal would once price dropped below the level of the previous trough. Keep in mind that the movement down is well underway by the time a full signal is given. When projecting possible price moves look at the preceding advance and consider that the price reversal that follows a full reversal signal has been known to fall roughly between 1/3 and 2/3rds of the advance.

When looking at time frame. If the advance took 7 months to develop, a consolidation period of approximately 1/3 to 2/3rds of that time frame often precedes a reversal when a reversal signal is given and the resulting reversal is often expected to fall 1/3 to 2/3rds of the price on the rise.

The longer a trend is in place, the greater the significance of a reversal of that trend. It is the same with analysis of peaks and troughs. The longer a peak and trough take to form, the greater the significance when a reversal signal materializes.

To the right technical studies are examined in more detail to provide a sense of conformational evidence for traders of the critical day. Click on any of the terms to take a closer look at a technical discussion on that topic. All formations, patterns, indicators and technical tools fail at various times and so should only be used to build a body of evidence in forming a trading decision rather than being solely relied upon. There are a number of valuable studies that lead to intuitive understandings about price and volume but a strong compliment to technical analysis is an understanding of the trends and changes in the fundamentals and economic activity that ultimately lead valuation levels in the markets.

Walk through a critical day

The graphs show a price plot of the Dow Jones Industrials from Sept 28/00 to early November. The First graph ends on November 3/00, two days before an upcoming critical day on November 7/00. Our members looking at the market are expecting a trend reversal to occur due to the high rate of success in our research. Ideally a member will be using their own skills to judge the supply and demand changes, using technical and fundamental indications to confirm suspicions of a reversal, and trade accordingly.
On the second graph we see that the price action on November 6 was a bullish day, reversing the short trend so that the short trend leading into the critical day is now up. A critical day is an expectation of a reversal of the short trend that immediately precedes the critical day. In the case of the November 7 signal, given to members 3 days before, is an indication that the upward moving trend, recognized at the close of November 6 is expected to reverse direction.
On the third graph we can see that November 7 was a low volatility after a large gain on November 6 of about 160 points for the Dow Jones Industrials. The subsequent move over the three days following the November 7 signal saw the Dow Jones Industrials fall 376 points. The next day, November 13, the Dow Jones Industrials lost an additional 83 points with intra-day low a full 609 point loss since the open on the critical day.

Most recent signals

A closer view of the most recent signals. You can see the short trend immediately prior to a successful critical day, reverses coming away from the critical day. Often a failed critical day will indicate a stronger bias in the market for continuation of the trend that was in place prior to the critical day. A failed signal can therefore provide as much information and opportunity as a successful one. Take a look at tech studies to develop a sense of trend reversals and use.

Tech Studies

Comparative Relative Strength

Congestion Pattern

Consolidation