DBQ's Dot Trend rule v.4, 6/1/2006 (based on conversations with FL)
rule
clarification
1. A new trend begins at a dot1.
  • In downtrend, a dot1-up begins an uptrend, but doesn't end the downtrend. The dot1-up is the failswing when a powersell fails to make a new low. This looks like a HH followed by a HL.
  • In uptrend, a dot1-down begins a downtrend, but doesn't end the uptrend. The dot1-down is the failswing when a powerbuy fails to make a new high. This looks like a LL followed by a LH.
  • The label dot1 will be reserved for the beginning of a trend. In dual trend both trends have already started, so in dual trend a FS after a dot2 will be labeled FS rather than dot1. So, in short, a dot1-up can only occur in downtrend, and a dot1-down can only occur in uptrend.
2. A trend ends if a FS against the trend trades 3 points past the last dot2.
  • The FS doesn't have to be a dot1.
  • The 3 points doesn't have to be reached in one wave.
  • In uptrend, a FS-down that trades 3 points below the most recent powerbuy ends the uptrend. If any HH is made after the FS-down but before the uptrend has ended, a new FS-down will be required before the uptrend could end. If there was a pimple after the powerbuy, the 3 points are measured from the original powerbuy, not from the pimple.
  • In downtrend, a FS-up that trades 3 points above the most recent powersell ends the downtrend. If any LL is made after the FS-up but before the downtrend has ended, a new FS-up will be required before the downtrend could end. If there was a pimple after the powersell, the 3 points are measured from the original powersell, not from the pimple.
  • The rule for ending a trend is separate from the rule for starting a trend. It is purposely harder to end a trend than to start one. Usually the old trend will not end until some time after a new trend has begun. This means that two trends are often in effect at the same time, which may be called "dual trend."
  • Usually when a trend ends a new one has already started. Occasionally both trends may end before a new trend has started, leaving a temporary condition of "no trend". This is not a problem, because a new trend will start within a couple of swings
  • A gap open cannot end a trend: If the trend-end level is hit on a gap open, the trend has not ended unless the next wave also hits the trend-end level or unless the trend-end level holds past the first hour of trading.

 

3. If a dot1 ends in a FS which trades 3 points past the last 3 lows/highs, the new trend is ended.
  • This doesn't have to happen in one wave.
  • For a dot1-up: If any subsequent wave makes a new high before the trend-end level is hit, the new trend remains valid.
  • For a dot1-down: If any subsequent wave makes a new low before the trend-end level is hit, the new trend remains valid.
    NOTE: bold print indicates changes from trend_rule_v3

Definitions and abbreviations:
wave the price movement from a high to a low, or from a low to a high (see definition of high and low)
High the highest price reached during an upwave of the volatility stop
Low the lowest price reached during a downwave of the volatility stop
VS volatility stop (2.5*ATR9 subtracted from the highest close or added to the lowest close)
HH Higher high, a wave top that is above the high of the preceeding wave
HL

Higher Low, a wave bottom that fails to reach the low of the preceeding wave

LH Lower High, a wave top that fails to reach the high of the preceeding wave
LL Lower Low, a wave bottom that is below the low of the preceeding wave
FS a high or low that fails to exceed the one before (a HL, a LH, an equal wave top or an equal wave bottom)
dot1 When a dot2 wave ends in a FS, starting a new trend.
dot2 a powertrade, either powerbuy or powersell (see definitions below for PB and PS)
PB powerbuy: LL in an uptrend. A second PB can't occur until a HH has been made after the first PB.
PS powersell: HH in a downtrend. A second PS can't occur until a LL has been made after the first PS.
dot3
(was P on early charts)
When a dot2 wave ends in a FS, and price pokes past the dot2 without ending the trend. In trading terms dot3 is just a convenient label for a second try at a dot2 after the first entry attempt may have gotten stopped out. In trend analysis terms the respective dot2 is still in play. In earlier charts a "P" label was used, but dot3 causes less confusion.
dual trend A new trend has begun, but the old trend has not ended.
primary trend In a dual trend condition, the older trend.