Rate of Change Patterns and the Four Stages of the Stock Market Cycle
Rate of change patterns can be employed in conjunction with moving averages to define the four stages of the stock market cycle. Rate of change readings usually change direction in advance of moving averages; the momentum of price movement generally reverses in advance of changes of price movement.
Charts 3.5 and 3.6 in this chapter provide examples of the behavior of rate of change measurements as significant market trends reverse. Moving averages can be made of daily rate of change measurements to smooth the often-jagged daily fluctuations of this indicator.
To sum up, moving averages, which reflect shorter and longer trends in the stock market, can help investors define ...
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