Education | Technical Indicators | Candlesticks | Chart Patterns
Trend Initiation
Definition:
Price Headley created Trend Initiation as a filter to only trade stocks which were starting to show a clear positive or negative trend. Looking back at a stock's range from high to low over 80 and 120 periods, Headley noted that when the Trend Initiation filter was over +10, it was often bullish for big uptrends in stocks. When the Trend Initiation filter was under -10, it was often bearish and suggested a significant downtrend for a stock.
Interpretation:
Use the Trend Initiation filter in conjunction with your other favorite trend-following indicators to confirm if a new buy signal is worth taking or not. Buy bullish signals if the Trend Initiation filter is above +10. For example, in the chart of Invision Technologies (INVN) below, the stock's breakaway gap once markets opened after the 9-11 attacks was confirmed by the Trend Initiation indicators cross above the +10 level (where the red line crossed above the horizontal +10 line shown in magenta on the chart below). The bullish Trend Initiation line confirmed this first move above the upper Acceleration Bands, as it did on another bullish breakout in late-November.
The direction of the Trend Initiation line (in red) is important too. Since this is smoothed over time, the indicator's direction serves to point out the general trend in prices. So you want to buy when the Trend Initiation filter is trending up in addition to being over +10. When the Trend Initiation filter turns down, you may want to consider an exit as a short-term trader.
Price Headley plots the Trend Initiation on his charts in conjunction with the Acceleration Bands and Momentum Divergence indicators to get a full picture of the power and direction of a stock's current trend.
