The Secondary Delineator is shown on a daily timescale. The Delineator Analytic is the line with the colored dots. The green indicates an uptrend Delineator cycle and the red indicates a downtrend Delineator cycle, the blue indicates a transition period where the Secondary is likely to flip up and down generating both long and short signals and increase risk. 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 Delineator is a leading indicator. It is not a moving average and does not use price in its computation. If the Delineator is rising and is green, you can expect price to make a series of higher highs and higher lows until the Delineator changes slope down. Counter trend moves will resolve back in the direction of the Delineator. Conversely, bear markets are identified by negative slopes and behave in the same way: lower lows, lower highs and counter trend moves resolve back in the direction of the Delineator.
With respect to how the Secondary is shown on this website, it is used only to define whether the Primary issues Long or Short Signals. The decision models used as trade examples, will only issue a trading signal if the direction is confirmed by the direction of the Secondary. For example, if the Secondary is up, only long signals will be issued; if the Secondary is down, only short signals. This is described more fully in the Primary section.
But it does have other uses which will be pointed out from time to time. George Lane (who invented Stocastics) once told me that "markets make three rallies to a top, the last rally being fueled by short covering." These words have rung true so many times during my career. You see this pattern always at major tops. And it is shown in the Secondary Delineator as negative divergence which I will point out in real time as it happens on the Delineator Journal page. You can see the positive divergence shown in late February, shown above, as the orange line rises as price is falling to new lows in early March. It told you not to sell the lows but to buy them instead. If you recall what was going on in the world in March 2009, the sky was falling, our economic system was collapsing, the market was in full panic mode and the Delineator was telling you to buy.
And most recently, in May 2010, the Secondary predicted that the end of the rally was March 19th and had been only short since that period. I have documented this here. For over 10 years I have seen the Delienator predict major market turns.
Markets are studies in uncertainty and behavior. Our reactions to what we believe may happen tomorrow, or is happening today, are expressed by those blue time series bars on the Delineator chart. Long term success is dependent upon a repeatable and measurable decision making process. This is what the Delineator provides. If you're already experienced, the Delineator will improve your trading. If you're new to trading, sign up and spend a few months following the Delineator Journal. You can also view past Journals in the Archive section.
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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.