I have received mail from purchasers of Nature of Trends (Wiley Edition) asking how to use Barros Swings. In fact a large section of the book deals with that topic. In addition, the Appendix shows you how to construct the swings. So, in this post, I’ll only briefly summarise the uses for the Swings
But first let’s outline the problem.
Figure 1 shows a downtrend….Are you sure?
FIGURE 1 Uses of Barros Swings
Let’s take a look at Figure 2. Notice that we have at “A” and at “B” higher highs and higher lows.
Aren’t downtrends supposed to have lower lows and lower highs? But since we have higher highs and higher lows, don’t we have an uptrend? Yet we intuitively say we have a downtrend, don’t we?
FIGURE 2: Is this an Uptrend?
This then leads to the first use of the Barros Swing: to identify the trend of a timeframe. Let’s turn to Figure 3 and the solution to the above problem.
Figure 3 shows that each time the 13-w corrects, the 4-week trends up i.e. forms at least a higher high and higher low. In other words, whenever a timeframe corrects, we can usually expect the First Lower Timeframe to try to change its trend. (In this blog, I am using the 4-week as a substitute for the 18-day).
FIGURE 3: 13-w and 4-w swings
In addition to identifying the trend, Barros Swings identify the support and resistance areas of a time frame. In Figure (3), for example, the highs and lows of the blue swings are the 13-w critical support and resistance points; the red swings are the equivalent of the monthly trend and its swing highs and lows identify the monthly support and resistance levels.
The final function of the swings is to identify the patterns that warn of a change in trend.
Yesterday, for example, we spoke about an Upthrust, a pattern that identifies changes of trend from up to down. The swings not only disclose the pattern, they also identify the time frame that is changing its trend.
By knowing that a swing size is changing its trend, we know that the first higher timeframe will probably have a change of line direction.
In Figure 4, we have the monthly S&P (cash). If the Green Line is going to turn down, its minimum target is 1340.45, the price at which the green line will turn down; of course the 12-m may be making a double-top in which case we can expect a retest of the 800 area.
FIGURE 4: Double Top?
Well folks, that about covers it: in this post I have covered a short summary of the uses of Barros Swings.