In Figure 1 we see that the Congestion Index treated every single 18-day (red line) swing correction as a change in trend, This is a common problem with traditional technical indicators. Because the indicators tend to be one-time frame dominated, they fail to distinguish in a simple and easy manner, corrections from changes in trend.

Barros Swings on the other hand, have a definitive point for the end of a down trend: one tick above the previous swing high for that time frame (swing magnitude). Thus, until the red line (18-day swing) exceeded a previous 18-day swing high, the Shanghai Index had an 18-day down trend in place.

Secondly, Barros Swings clearly identify when corrections are in progress. Any line change against the trend is a correction. Since the benchmarks for a correction are clear, it’s easy enough to obtain a series of corrections to calculate the mean and standard deviation in terms of magnitude and time. For example we could assess that an average 18-day correction in the Shanghai Index is 20% plus 10% to minus 5%; and we assess that the average days would be 18 days plus 7 days to minus 3 days. So, we could say that the average correction would be 30% to 5% within a 10 to 4 day period.

This time window would then be augmented by other tools e.g. Midas, Ratio retracements and projections for price, seasonal tendencies and cycles for time.

In this regard, Barros Swings clearly identify the extremes from which to measure ratio retracements and projections. For example, in the first 18-day retracement, there are two extremes from which we could measure the retracement (in Figure 2, off the first red high and off the first blue high). Traditonal approaches would measure off both tops to provide a confluence of prices to identify a zone; a more robust approach would be to adopt different tools to provide the zone e.g. retracement ratios of the 18-day swing high; projection ratios off the 5-day swings; MIDAS; the statistical time and price windows.

This concludes the series. I hope you have found it worthwhile. More information is available in the Nature of Trends.

FIGURE 1 Barros Swings and the Congestion Index

FIGURE 2 Barros Swings 18-day and 5-day

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