Sunday, June 20, 2010

Stepup stepdown theory (mother of all trading theories)

Stock (or index) value moves in circular steps, like a bouncing ball moves on a floor.

All touch-down or support points are like sharp pencil heel supports.

All tops are generally like plateau's.

As per step-up step-down theory,

if you join all touch-down/support points and see the angle which it makes with the horizontal then the following rules rule:-

1) every next angle is and has to be lesser than the previous angle. e.g. angle alpha will be always more than angle beta which will always be more than angle theta....and so on.

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2) if it isn't, then it is a bluff. In other words, it is a stretched position which, sooner or later, will retreat to honour rule 1.

3) these successive angles will always decline till 0 degree where it is to take support and bounce back compulsarily.

4) if it doesn't, it is part of the outer circular step as mentioned in rule 5 below.

5) Every trend has inbuilt smaller trends which may have inbuilt mini trends. Each of this trend will obey rule 1.

6) After 0 degree stage, a stock can breach it after a brief bounce or start full-fledged next higher sojourn as per rule 1.

This theory can independently explain the best points to go long and the best ones to go short.

You can catch the bluff of the price movement to perfection.

This applies equally well in any time frame.

Here, the bluff has started from the 4th hill. Instead of making angle delta it has started going up and up. This means that it is starting an inner circular sub-trend which will again start moving as per the rules. But this is a bluff / stetched / unsustainable trend which will soon collapse after 0 degree stage (marked with an arrow).

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