Section 10:
Changing Phases of the Market Situation
The Market Situation is subject to change. The transition from one phase to the next doesn’t happen overnight. For example, it usually takes at least a few months to transition from Bear Alert to Bear. But it’s important to adapt to changing market conditions and be willing to transition from trading one type of price pattern to another type of price pattern.
Different phases of the Market Situation will last for different lengths of time. The longest lasting phase by far is a Bull market because of the historical trend of higher stock prices. But some Bear markets can last several years. The Bull and Bear Alert phases are usually the shortest in duration, but even these phases take a few months to play out.
Below is an illustration that will help when visualizing the different phases of the Market Situation. (See Figure 10.6) Remember to match the trading of different categories of price patterns with the best Market Situation. If the Market Situation is unclear, then it’s probably a Neutral market, or a transitional period between one of the four primary phases.
Figure 10.6
Bullish continuation patterns are best to trade during Bull markets.
Bearish continuation patterns are best to trading during Bear markets.
Bullish reversal patterns are best to trade during Bull Alert markets.
Bearish reversal patterns are best to trading during Bear Alert markets.
A mix of price patterns is best to trade during Neutral markets.