Wednesday, June 12, 2024

Swing Points as Trend Change Indication | Larry Williams

A trend change from up to down occurs when a short-term high is exceeded on the upside, a short-term trend change from down to up is identified by price going below the most recent short-term low. Figure 8.1 depicts such trend changes in a classic manner, study it well because reality comes next! Here are a couple of pointers on this technique. Although the penetration of one of these short-term highs, in a declining market, indicates a trend reversal to the upside, some penetrations are better than others.

 Figure 8.1 — Classic patterns of trend change.

» There are only two ways a short-term high or low is broken. «
 Figure 8.2 — Breaking a short-term high or low.

There are only two ways a short-term high or low is broken. In an up trending market, the low that is violated or fallen below will be either a low prior to making a new rally high, as shown at (A) in Figure 8.2, or a low that occurs after decline of a high that then rallies making a lower short-term high; it then declines below the low prior to the rally that failed to make a new high, as shown at (B). The better indication of a real trend change is the violation of the low shown at (A). By the same token, a trend reversal to the upside will occur in one of the two following patterns: In (A), the rally peak prior to a new low is violated to the upside, or in (B), the market makes a higher low, then rallies above the short-term high between those two lows. In this case, again, the (A) pattern is the better indication of a real trend reversal.

Figure 8.3 — T-bonds (15-minute bars)

With that in mind, look at Figure 8.3, which shows a 15-minute bar chart of the September Bonds in 1989. The major trend moves were adequately captured by this technique. [...] You can use this technique two ways. Some traders may simply buy long and sell short on these changes in trend. That's a basic simplistic approach.