As a discretionary trader, I developed the Matrix rating as an objective tool to double-check my assessment. The original format gave way to one I saw in Pruden’s “The Three Skills of Top Traders”. This is the format I adopted in the Nature of Trends. After I complete my analysis, I begin the matrix – see Figure 1. The idea is to provide a numerical that identifies the bullish or bearish disposition of the market. The Weighting Column allows inputs from 3, 1, 0, -1, -3.Once I have rated the individual elements of each section, I normalize the rating for the section.
FIGURE 1 MATRIX
Let’s use the current S&P basis cash to show how I apply it.The Ray Wave/Nature of Trend show a confirmed downtrend in the 18-d but the latest price action shows the probability of a move to at least the Primary Sell Zone (Figure 2) and probably a move above 1399 but below 1424 (5-d Maximum Extension) courtesy of the 5-d Spring Change in Trend (CIT). We need to see a directional bar closing above 1286 to trigger the signal.
FIGURE 2 Barros Swing
The other price items in the Price category don’t apply. Hence Price has a rating of 1.
Volume is the next category and here the first item is normalized total volume. Figure 3 shows that the normalized volume on the new low yesterday was on lower volume than the first leg. This is bullish. So, the rating here is 3.
Figure 3 Normalized Volume
The Market Profile showed a Neutral Day closing in the middle quadrant. This is a test day and is often a precursor to a low (or high). I’d rate this as 1.
FIGURE 4 Market Profile
The Delta Volume for the day is positive. I’d rate this a 3.
Figure 5 Market Delta
In the Sentiment Category, both Whisper Numbers and Upperman’s COT data are bullish. A ‘3’ for each. Only short term cycles are applicable at this moment. Here I have a rating of ‘3’.
Figure 5 is the final Matrix. For today, we see a rating for the 5-d trend (18-d line direction) of 2.3: a bullish rating.
FIGURE 5 Final Matrix
Since my timeframe is the 18-d, the fact that the Matrix confirms the subjective analysis means I’d cover shorts (if I had any) and stand aside until we see 1390s or accept below 1270.