CHAPTER 4 :

TYPICAL PARAMETERS FOR

INTERMEDIATE TRENDS
Some Basic Observations
The price movement that corresponds to changes in
economic activity over the course of a typical 3- to 4-year
business cycle.
Though it is clearly important to have an idea of the
direction and maturity of the primary trend, it is also helpful
to have some understanding of the typical character and
duration of the intermediate trend for the purpose of
improving success rates in trading, and also to help assess
when the primary movement may have run its course
 Successful analysis of intermediate trends for any
market or stock offers the following advantages:
1. Changes in intermediate trends aid in
identification of turning points in the primary trend.
2. Intermediate-term trading involves fewer
transactions than trading of minor price movements
and, therefore, results in lower commission and
execution costs.
3. Intermediate-trend reversal points occur several
times a year and can, if properly interpreted, allow
a relatively high and quick return on capital.
* if we short term trader, we set for pair (2)
* We set in pair to make 2 different decision, long term n
short term trader.
* If we go for long term it is hard to know the peak n
trot, go for short term
* Take advantage at trot, but always target
highest peak, make assumption
Intermediate Cycles Defined
A primary trend typically consists of five intermediate
trends, three of which form part of the prevailing trend,
while the remaining two run counter to that trend.
In a bull market, the intermediate countertrends are
represented by price declines; in a bear market, they
form rallies that separate the three intermediate down
waves, as shown in Figure 4.1.
 Intermediate-term trends that move in the same
direction as the primary trend are generally easier to
profit from.
Those who do not have the patience to invest for the
longer term will find that successful analysis of
intermediate movements offers superior results,
especially as the day-to-day or minor swings are, to a
large degree, random in nature and, therefore, even
more difficult to capitalize on.
 Intermediate movements can go either with or
against the main trend, which means that there is an
intermediate cycle similar to a primary one.
An intermediate cycle consists of a primary
intermediate price movement and a secondary
reaction. It extends from the low of one intermediate
trend to the low of the other, as shown in Figure 4.2.
Causes of Secondary Reactions
Since the primary trend of stock prices is determined by
the attitudes of investors to the future flow of profits,
which are, in turn, determined to a large degree by the
course of the business cycle, it would seem illogical at
first to expect longer-term movements to be interrupted
by what often prove to be very uncomfortable reactions
(or in the case of a bear market, very deceptive rallies).
 Major Technical Principle At any one time, there are four influences
on prices. They are psychological, technical, economic, and monetary
in nature.
Using Intermediate Cycles to Identify Primary Reversals.
Number of Intermediate Cycles
A primary movement may normally be expected to encompass two and a
half intermediate cycles (see Figure 4.3).
Unfortunately, not all primary movements correspond to the norm; an
occasional primary movement may consist of one, two, three, or even four
intermediate cycles.
Furthermore, these intermediate cycles may be of very unequal length
or magnitude, making their classification and identification possible only
after the event. Even so, intermediate-cycle analysis can still be used as a
basis for identifying the maturity of the primary trend in most cases
Characteristics of the Final Intermediate Cycle in a
Primary Trend
In addition to actually counting the number of
intermediate cycles, it is possible to compare the
characteristics of a particular cycle with those of a
typical pivotal or reversal cycle of a primary trend.
These characteristics are discussed in the following
sections.
Reversal from Bull to Bear Market
Since volume leads price, the failure of volume to
increase above the levels of the previous intermediate-
cycle up phase is a bearish sign.
Alternatively, if over a period of 3 to 4 weeks,
volume expands on the intermediate rally close to the
previous peak in volume but fails to move prices
significantly, it represents churning and should also be
treated bearishly.
Reversal from Bear to Bull Market
The first intermediate up phase of a bull market is usually
accompanied by a substantial expansion in volume that is
significantly greater than those of previous intermediate up
phases.
In other words, the first up leg in a bull market attracts
noticeably more volume than any of the intermediate rallies in the
previous bear market. Another sign of a basic reversal occurs
when prices retrace at least 80 percent of the previous decline.
Again, the greater the proportion of retracement, the greater
the odds of a reversal in the basic trend. If the retracement is
greater than 100 percent, the odds clearly indicate that a reversal
in the downward trend has taken place because the series of
declining peaks will have broken down.