de Leon MRI

The de Leon Velocity is a Phase Lead Indicator. This means it has been designed as an early warning indicator.

The formula has 2 lines (+S and -S). Unlike the de Leon Tracker whose lines can switch over from top to bottom, +S is designed to be above -S for most of the time.

MRI stands for Mean Reversion Indicator... Let's assume that +S and -S are like elastic bands parallel to each other. As one side of the market drives the market in one direction the "elastic" so too moves. If +S crosses -S or vice-versa we have an extreme condition. Mean Reverting means we can expect the market to return back to its mean. In other words if a market moves too far one way it should revert back to its mean.

To a trader this means we can expect a market to either:
move sideways (typically until short-term mean is restored *); or
change direction temporarily (typically until short-term mean is restored *); or
change direction completely (typically until long-term mean is restored *).

Thus, this indicator is more powerful when combined with exponential moving averages like EMA(20) and EMA(100).

* IMPORTANT: a market's mean value changes over time. If an extreme condition occurs today, it is a mistake to assume the market will revert back to today's mean. For example it may revert back to the mean 10 days from now and we don't know that yet.

As always you must do your own research as to what patterns work best. The above examples should help you get started. Some examples to start your research on:

PATTERN 1 - v crossover
Step 1 - +S crosses -S heading down
Step 2 - +S turns up (+D appears) (call +D low point bar Up1)
Formula: +S(Up1) < -S(Up1), de Leon Trend (Up1) is bearish

v crossover followed by Pattern 2 n pattern with successful retest:

v crossover followed by n pattern with failed retest:

PATTERN 2 - n pattern
Step 1 - +S falls below M
Step 2 - +S turns up (+D appears) (call +D low point bar Up1) then +S rises above M
Step 3 - +S turns down (call +S high point bar Dn1)
Step 4 - +S turns up (+D appears) (call +D low point bar Up2) - +D at Up2 must be higher than at Up1
Formulae: +S(Up1) < M, +S(Dn1) > M, +S(Up1) < +S(Up2), de Leon Trend (Up2) is bearish

n pattern, no subsequent retest:

n pattern followed by successful retest:

PATTERN 3 - m pattern
Step 1 - +S falls below M
Step 2 - +S turns up (+D appears) (call +D low point bar Up1)
Step 3 - +S turns down (call +S high point bar Dn1)
Step 4 - +S turns up (+D appears) (call +D low point bar Up2)
Step 5 - +S turns down (call +S high point bar Dn2) - Dn1 or Dn2 is above M
Step 6 - +S falls below M
Step 7 - +S turns up (+D appears) (call +D low point bar Up3) - +D at Up3 is higher than Up1. Price low will ideally be lower than at Up1.
Formulae: +S(Up1) < M, +S(Dn1) or +S(Dn2) > M, +S(Up3) < M, +S(Up1) < +S(Up3), +S(Up2) > +S(Up3), de Leon Trend (Up3) is bearish

m pattern, no subsequent retest:

m pattern (with failed retest) then a bigger m pattern (successful retest) followed by n pattern with successful retest:

The right hand m example above shows there is always potential for further downmoves. WARNING: Always be cautious, especially when a market has failed to successfully retest prior lows. No matter what an indicator suggests, subsequent events can cause a market to continue with trend rather than change direction.

For further research will be inverse patterns using -S instead of +S, such as ^, u and w patterns.