The Primary Delineator is shown on a 30-minute timescale.  The Delineator Analytic is the line with the colored dots.  The green indicates an uptrend Delineator cycle and the red indicates a down trend Delineator cycle, the gray indicates an unconfirmed signal.  The white arrows on the Delineator are slope changes not buy or sell signals.  The orange line is the Change of the Slope value.  The blue lines are of course the time series of the ETF, SPY in this case.  The Delineator predicts future price direction very effectively over certain time frames.  It's up to your skill as a trader to capitalize on that knowledge.

The numbers at the top are:

Primary=the actual value of the Delineator
SW=Signal Weight (ranges from -3000 to +3000 at extremes)
Slope=slope value
Change=last bar value change of the Slope (the orange line)

The Primary oscillates between positive and negative extremes based upon changes in signal weight.  Once it changes slope, the Primary cannot change slope again until it completes its cycle.  The Delineator gives you a repeatable and measurable means of basing trading decisions.  It's the same process each and every time.  My goal then is to teach you to predict when the Primary will change slope.  Knowing this will allow you to buy into lows and sell into highs much more efficiently than with any price-based trading tool.

Described on the Journal page is the information you will need to be able to predict:  1)when the Primary is going to change slope, 2)when it is impossible for it to change slope, and 3)when the Primary cannot continue to move in the direction it is moving and must reverse.  Learning these three skills is essential in understand how to use the Delineator.  WHY?

When the Primary changes slope, a new trend is established.  Slope changes occur at tops and bottoms.  We know that when the Primary changes slope up, we don't want to be shorting.  When it is changing slope down, we don't want to be going long.  Signal weight is a variable in the Delineator that is computed and displayed.  Its calculation follows a sequential, repeatable pattern that is expressed in the Slope and Change numbers shown at the top of the chart above.
 
Once we get a slope change, and we understand how signal weight determines the value of the Primary, we can identify periods of time when the Primary cannot change slope for several days.  During these periods, price will dependably follow the motion of the Primary allowing new positions to be established.  Counter trend price movement, rather than being a risk, are opportunities because if the Primary cannot change slope, price will resolve back in the direction of the Delineator.  Trading decisions are based upon the motion of the Primary
 
Typical Primary cycles last 2-4 days and can only go so far before going back through an opposite cycle.  At a point typically 2/3rd's of the way through a cycle, the Primary will be unable to move any more in its direction and will want to reverse.  During such periods, any further moves in price will be unsustainable and will be easily identified.  Such periods create setups, what I call "balloons under water" that make great reversal trades.

Central in this process is the Delineator STATS window.  The STATS windows allows you to accurately predict when the Delineator can change slope and when it cannot.  This is key to the process because knowledge of the behavior the Primary will enable you to predict the price behaviors with respect to short term trading.  Knowing that the recent lows or highs will either hold or be exceeded is key information the Delineator can provide that other price based methodologies may not.

The Decision Models

To help new users understand how to use the Delineator, I have created 3 simple trading models that users can follow along on the Delineator Journal.  While they work pretty well by themselves, these are just models, how you use the Delineator is up to you.

2010 Model:  This model is the easiest to follow.  To be a valid signal, long or short signals must be confirmed by the direction of the Secondary Delineator which must be in a trending mode (ie: colored red or green, not blue).  For simplicity, if the Secondary Delineator is red, only short signal are issued.  If the Secondary is green, only long signals.  If the Secondary is blue, indicating a non-trending mode, no signal is issued.

A specific price change in the security being used is the profit target for each trade.  I use "plus a percent" from the signal price to set my GTC exit limit.  Once that target has been achieved there can be no new signals until the current cycle is complete.  Most cycles on the Primary last 2-4 days and most signals achieve their targets within the first full trading day of the signal.  So you can see, you spend more time out of the market and doing other things than sitting in front of your computer screen with a twitchy finger on the trade button.

In this application of the Delineator, you simply wait for a signal, enter your trade, place your exit limit and wait either for your limit to be achieved or you close your position when the current cycle ends and the Delineator issues an Exit Trade signal.  Over a year's worth of trading, you will not be able to add any real value to your return by attempting to anticipate a signal, or get out early because of fear, or stay in a signal because of greed.  STICK TO THE DISCIPLINE and you will see more consistent returns with fewer transactions.  If you can net 3 points a month trading for +1%, that's nearly a 35% return during a year without having to pay any attention to the talking heads and prognosticators that frequent the airwaves and blogospheres.  These people would go broke if their incomes depended on their trading skills.

And as volatility increases, your risk actually decreases if you consistently trade for the same profit amount each and every time (plus a percent on 5,000 shares of SPY for example).  A typical range on SPY during a cycle is 2-4 points (from low to high).  If volatility increases, you could easily see this range expand to 3.5-7 points.  Regardless, if you were to stick to trading a signal for a percent from the signal price, the greater the range the easier it is to achieve a 1% change in SPY.

Remember, this particular strategy is just one of many that you can use effectively with the Delineator.  As a reliable trend identification toolset, you will learn to adapt it to your own situation.  This chart shows the point potential the Primary identifies based solely upon slope changes.  A reasonably good trader should be able to achieve at least 20% of the gain potential.  Your success is dependent upon your ability.

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I developed the Delineator when I was a portfolio manager.  Having a reliable trend identification model was key in knowing when to be building positions, and more importantly, when to be locking in or hedging profits in portfolios.  As a portfolio manager, I would typically use weekly and daily time scales as these cycles played themselves out over longer time frames.  In seeking short term opportunities, daily and 30 minute time frames are used (daily=secondary delineator, 30 minute=Primary delineator).  There are other applications for the Delineator that I can discuss with you individually.