The Basic Theory

When we trade and in what direction

The Delineator Analytic operates in two different time frames.  The longer term Delineator, the “Secondary” runs on a daily time frame and determines the overall trend of the market.  The shorter term Delineator, the “Primary” runs on a 30 minute time frame and identifies interday cycles within the longer term time frame.      

The Secondary Delineator tells us in what direction to trade.  If the slope of the Secondary is up, we will only trade long.  If the slope of the Secondary is down, we will only trade short.  While it is possible to trade in both directions regardless of the daily trend, we substantially lower our risk by only trading in the direction of the daily trend, the Secondary Delineator.

The Primary Delineator determines when we trade, it’s the trigger.  When the Primary changes slope up, we originate long trades.  When the Primary changes slope down, we originate short trades.

Example:  If the slope of the Secondary is positive (up), and we get a slope change up on the Primary, we will then be able to trade long; an enter long signal will be issued.

Example:  If the slope of the Secondary is positive (up), and we get a slope change down on the Primary, we will do nothing because we won’t trade against the longer term trend: no signal will be issued.

Example:  If the slope of the Secondary is negative (down), and we get a slope change down on the Primary, we will then be able to trade short; an enter short signal will be issued.

Example:  If the slope of the Secondary is negative (down), and we get a slope change up on the Primary, we will do nothing because we won’t trade against the longer term trend: no signal will be issued.

Conclusion:  We only take trading signals issued by the Primary that are confirmed by the slope of the Secondary.

Pretty simple.  Ignore the man behind the curtain, pay attention to the slopes of the two Delineators.  While you’ll see more complexity later on, this then is the essence of the theory and discipline behind when we trade and in what direction.  As you learn more and become proficient, you’ll discover more opportunities beyond these.  However, you’ll find that the simplest approach generates the most return for the least amount of time spent watching the market.

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