The Four Rules
Technical Event Model (TEM)
The Four Rules for assessment of risk and opportunity.
Here is the concept brief behind the Technical Event Model. It does not include the rules, so here they are in brief.
Rule #1. Low %C-Original + High Historical Volatility occurs at the end of a forceful trend. 90% of the time expect a period of contracting range with a forceful trend-less-ness. If you are a trend follower, when you see rule #1, it will be when the equity curve of your best trend following systems and your best breakout day trader is peaking and its time for you to walk away from the table and count your money.
Rule #2 High %C-Original + Low Historical Volatility is a leading indicator of a period of a forceful trend, in either direction. Play the break or the trend following signals.
Rule 3. Low %C-Original + Low Historical is a leading signal for a low energy market the high to low range contracts and trending swings become shorter but persistent and ready for a change.
Rule 4. High %C-Original + High Historical Volatility expect a period of expanding the range, it is not as directional from day to day as TE#2, but the wider the range of the bar can lead the direction the next bar. It is good to apply to break out systems that trade both directions.