(Click on image to enlarge it)
(This is Part 3 of a series. Go back to Part 2.)
When monitoring BTX for a turn, it’s also important that the +TX and –TX lines respond accordingly. That is, we like to see that one or both of the TX lines are exceeding their respective standard deviation bands in conjunction with the high BTX score, and that at the time of the BTX turn, the TX lines begin to converge towards each other.
In this case, the –TX (shown in red), was well beyond its upper SD band (shown as the upper dashed red line and labeled pt. B’ in red), while the +TX (shown in green) was also simultaneously violating its lower SD band (shown as the red B’ at the lower dashed green line).
When BTX turns down at pt. B, notice how the –TX (red line) makes a sharp turn lower, while the +TX (green line) bottoms out and turns higher. This is classic BTX performance, telling us to expect a pause or reversal in the market. Then within 4 bars, BTX dropped below the trend threshold of 35 (labeled pt. C), indicating that there was no trend component remaining in the market.
Note that after BTX dropped below 35 (Pt. C), prices moved sideways for more that 1½ years!! The message here is that trying to extract profits from a market with no trend is going to be difficult, and the BTX provided us with a very clear warning to look elsewhere for better opportunities.
After BTX crossed below 35 at pt. C, the market began to trade in a very tight trendless range. Even though the BTX was indicating little to no trend, note the behavior of the +TX and –TX lines beginning in early 2003. The +TX crossed above the –TX in Jan. (pt. D’), indicating that the bulls were gaining the upper hand. Then within about 4 bars, the +TX and –TX began to separate, tipping us off that there was strong accumulation taking place within this low-to-no trend, listless price action period.
In fact, the timely bullish message being delivered from this tool actually began even earlier. Note that the –TX line had crossed below its SD center line moving average (the solid light red line bisecting the upper and lower SD lines) as early as April 2002 at pt. 1’.
This is an additional confirmation that the prior down move from 2001 is over. Then when the +TX line crossed above its SD center line moving average (shown as the solid light green line bisecting the upper and lower SD lines) one or two bars later at pt. 2’, it provided us with the earliest possible indication that a new bull market might be developing.
Note that after both the +TX and –TX lines crossed their respective center moving averages in mid 2002, prices maintained a flat to bullish tone throughout the remainder of the trendless period through late 2003 when BTX finally broke above 35 telling us that a new trend was once again operative.
Before discussing the breakout of BTX above 35 (at pt. E), let’s turn our attention once again to the STX stop during the early 2002 to late 2003 period (pts. C to E in the BTX pane), when BTX was below 35 indicating little to no trend. That is next.
(This is the end of Part 3. Go to Part 4.)
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