MarketColorTutorial

1. Determine the market's trend

To begin analyzing a MARKETCOLOR profile, the 1st step is to determine if the market has a trend bias or not. To do this, the color profile of the Trending indicators, MA (Moving Average ) and DMI (Directional Momentum Indicator), should be noted.

A GREEN, BLUE, ORANGE or RED color signifies a trend bias. If the color of either the MA or DMI indicator is BROWN, the other indicators' trend color should be discounted. If both are BROWN, the market is in a NEUTRAL posture.

In a NEUTRAL trend bias, the analysis should focus more on the Oscillator indicators. The Moving Average indicator can be in a YELLOW or extreme position, which would signal caution to any DMI signal.

2. Determine the strength of the trend

If the market has a trend, how strong is it? Do both the MA and DMI trending indicators confer?

If both trending indicators have any combination of GREEN | BLUE or

ORANGE | RED, the market will have a strong trend bias. An AQUA or PINK color is transitional and should NOT be considered trending.

After a trend has been determined, the next indicator to look at is the market trending ability or ADX (Average Directional Index).

3. Determine if the market has follow through potential

An ADX with a BROWN color signals that the market is not showing any trending tendencies and would discount the trend color bias. In this instance, greater weight should be placed on the Oscillator indicators.

A PURPLE color signals a trending market and will add weight to any trend signal and discount the Oscillator indicators. A trending market with trending tendencies should then view the Turning Point (Slow Stochastic) and Extreme Deviation (Dynamic Channel) systems.

4. Is the trend at a Turning Point?

The SSTOC | SS (Slow Stochastic) Turning Point system shows momentum with or against the current trend.

Is the trend ready to reverse? If so, the SSTOC | SS will have a counter-trend action color (GREEN or ORANGE) associated with it and should always be respected.

A YELLOW color in this system is a signal that the market is at an extreme, and the trend is exhausting with the possibility of a pause or reversal of the current trend bias.

A BLUE or RED color in this indicator signals positive or negative momentum respectively and would reinforce any like-trend bias. A BROWN color discounts this indicator.

5. Is the market at an extreme?

The Dynamic Channel color profile shows if a market is moving towards or is at an extreme (YELLOW). All other colors should be noted for their support for or against the current trend.

6. Is the market in a NEUTRAL posture?

If the market does not have a trend bias or does not have any trending tendencies, then the Oscillator indicators (RSI - Relative Strength Index, ROC - Rate of Change, and MACD - Moving Average Convergence Divergence) will determine the market's tone. Note that the ROC and MACD indicators are now shown on the MarketColor Ranking Table, but are included in the calculation of the MC Value.

The Oscillator indicators chosen are divided up into different time frames: the RSI is the shortest, followed by the ROC and then the MACD for a longer-term outlook.

7. Is the market overbought or oversold?

If any of the Oscillators are at an extreme, they will produce a color signal. The RSI is the only Oscillator indicator that can produce a momentum signal with a GREEN (BUY) or ORANGE (SELL) signal associated with it. This signal is usually early in a market's transitional posture.

8. What is the general tone or MC Value?

The market's technical "color" profile is summarized into a single numeric value - the MC Value. The value is based off the color position of the different MarketColor Indicator technical systems. Markets with more systems in a positive position will have a greater positive MC Value, and markets with more systems in a negative position will have a more negative value. Markets counter-balanced or NEUTRAL in color will have a value of zero (0).

The MC Value is by itself a stand-alone indication of a market's strength or weakness. The value has a range of +11 to -11.

Conclusion

After going over the MarketColor profile and noting the MC Value, a market's underlying technical tone will be revealed. This result should be used as a component when making trading decisions with or without other supporting technical or fundamental work.