Section 10:
Determining The Market Phase
The Market Situation can be determined by using a combination of tools and strategies, or by simply using a single method. Different traders gravitate towards different tools or combinations of tools. There’s no right or wrong way of determining the Market Situation so long as it’s done consistently and as objectively as possible.
Following is a listing of some of the best tools that can be used to determine the Market Situation. The listing is not all-inclusive as there are innumerable broad market indicators that traders can use to determine their own unique Market Situation.
We have, however, narrowed the list down to five indicators that can be used to determine the current situation of the market. These five indicators can be used in an objective and consistent manner:
Broad Market Trend
New High/Low Index
Advance/Decline Line
McClellan Oscillator
Bullish Percent Index
Each indicator can be used to score the Market Situation. The individual scores can be summed to determine what phase the market is in and how best to trade the current market climate. The score of the Market Situation can range from 0 to 5, with 0 being the most bearish and 5 being the most bullish.
We encourage traders to start with the five indicators and use a scoring system to keep the process simple, consistent, and objective. With experience and additional learning, more indicators can be added and increasingly complex system can be employed to assess the current situation of the market.