The floor/ceiling method
That method is originally a variation on the higher high/higher low method. Everyone has intuitively used it and yet it is so obvious that no-one has apparently bothered to formalise it. Unlike the higher high/higher low method, only one of the two following conditions has to be fulfilled for the regime to change:
- Bearish: A swing high has to be materially lower than the peak.
- Bullish: A swing low has to be materially higher than the bottom.
The swings do not even have to be consecutive for the regime to change. For example, markets sometimes shoot up, then retreat and print sideways swings for a while. Those periods are known as consolidation. The regime does not turn bearish until one swing high is markedly below the peak.
The classic definition is always valid regardless of the time frame and the asset class. Lows will be materially higher than the bottom in a bull market. Conversely, highs will be materially lower than...
