Bulkowski's Detecting Trend Changes

This slider tutorial discusses Victor Sperandeo's trend change method. It's a three step process. First, draw a trendline from the highest high to the lowest low after the highest high so that the trendline does not cross prices until after the lowest low. I show that on the chart as line A1. Point A is the highest high. B is the lowest low after the highest high. The trendline crosses price only after B. The trendline cross happens at 1, and when price closes above the down-sloping trendline, it completes the first step. Second, price tests (or retests) the low. The minor low test is at 2 when price tries to reach the same price level as B, but failing. The third step is for price to close above the peak between the lowest low and the test. That happens at point 3. When you have all three conditions met, then the trend has changed from down to up. I tested this method and it works...not all the time, but it does add value. It is somewhat ambiguous because it depends on the what is the highest high. The more data you look at, you'll find different highs. Let's let you try to find where the trend changes in the next chart.

Draw a down-sloping trendline because we want to know when price will resume an uptrend. Look for price to close above the trendline. Then search for a test of the low followed by a close above the peak between the lowest low and the test. For help, click here.

This is my answer. I drew a trendline from the highest high to the lowest low so that the trendline does not cross price until after the lowest low. The test of the low occurs before the trendline, at 2a. I think that's fine but Sperandeo doesn't make this clear (or that's my recollection). You might say that 2b is the test of the low, but it's too far away, in my view. Price closes above the peak between the lowest low and the test at point 1, the price bar between 1 and 3. The next slide discusses the method for uptrends.

How does this 1-2-3 trend change method work for uptrends? Here's how to apply it. Draw a trendline connecting the lowest low on the chart to the highest high after the lowest low. I show that as line A1. Let's assume point A is the lowest low and B is the highest high after A. Point 1 is where price closes below the trendline. Price attempts to make a new high at 2 but fails to reach the high at B. Price then drops and closes below the valley formed between 1 and 2 (which is valley C). That happens at point 3 when price closes below the low at C. When those three steps are complete, the trend has changed from up to down. I tested this and found that it works...but not all the time. Again, some of the points are unclear and it can be difficult to apply especially when the test of the high (or low) doesn't occur for a loooong time. Try your skill at applying this method on the next screen.

Try to apply the three steps to this uptrend. Draw an up-sloping trendline. Look for a trendline break (a close below the trendline). Look for a test of the high and a close below the minor low between the trendline break and the test of the high. For help, click here.

Here's my answer. The lowest low on the chart is A. The highest high after the lowest low is B. Price closes below the trendline at 1. The test of the high occurs at 2. Price then drops and closes below minor low 1, at point 3. The trend changes from up to down at 3.