de Leon Velocity

BlL: Cyan line

BrL: Pale yellow line
YDot: Yellow dot
PDot: Purple Dot
HL: White dotted horizontal line
LL: White dotted horizontal line

BlL: Cyan line (Bullish value BlL)

BrL: Pale yellow line (Bearish value BrL)
YDot: Yellow dot (if BlL > BrL, dot shows a higher BlL peak than the previous one)
                          (if BlL < BrL, dot shows a lower BlL trough than the previous one)
PDot: Purple dot (if BlL > BrL, dot shows a lower BlL peak than the previous one)
                         (if BlL < BrL, dot shows a higher BlL trough than the previous one)
HL: White dotted line (high level set to 60)
LL: White dotted line (low level set to 40)

Have you ever asked yourself "just how fast are the bulls driving the market relative to the bears"? Whichever side is driving the market harder should prevail and drive the market their way, right?

As trading is nil sum gain, it is assumed all bullish and bearish activity adds up to 1 (or 100%). Thus, de Leon Velocity has a y-axis scale of 0 to 100.

The indicator logic has 2 formulae to devise how hard the bulls and bears are driving the market. We call this velocity. There is one formula for bullish velocity BlL and one for bearish velocity BrL. In theory, both BlL and BrL can have a maximum velocity of 100 though in reality this never happens.

For example in a strong bull move we can expect BlL to rise and oscillate above 60. After reaching each primary cycle high the market will retrace. BrL will gain velocity as BlL loses it. If the bull trend continues unabated BlL rises again to over 60.

The de Leon Velocity is a Trend / Contra-trend Indicator but unlike de Leon Trend it can show changes in velocity in the trend which can be very useful when pattern recongnition techniques are employed.

Now you may think all you need to do is buy the market when BlL rises above BrL and sell the market when BlL falls below BrL. WARNING: by the time one side has gained more velocity than the other side, the market may have moved a long way leaving you with a poor entry price and alot of risk.

Therefore, it is better to use pattern recognition techniques to detect changes in acceleration rather than by using absolute velocity.

You will note there are only dots on the BlL line. We recommend you employ pattern recognition to this line only, WARNING: otherwise you will add unecessary complexity which is likely to lead to human error and risk of losing money.

As always you must do your own research as to what patterns work best. Some examples to start your research on:

Pattern 1: w pattern - For an expectation of a decline in bullish velocity
Condition: BlL must rise above BrL and remain so for all the steps
Step 1: BlL rises above 60 then BlL turns down (YDot or PDot appears)
Step 2: BlL turns up again
Step 3: BlL turns down (PDot appears)
Step 4: BlL turns up again
Step 5: BlL turns down (YDot appears) - check that this point is higher than the other dots in the W

Now also look for bigger W patterns that perhaps have a W within a W. Sometimes you will see two or more PDots in between two YDots forming a bigger W.

Pattern 1 w pattern:

Pattern 2: m pattern - For an expectation of an increase in bullish velocity
Condition: BlL must fall below BrL and remain so for all the steps
Step 1: BlL falls below 40 then BlL turns up (YDot or PDot appears)
Step 2: BlL turns down again
Step 3: BlL turns up (PDot appears)
Step 4: BlL turns down again
Step 5: BlL turns up (YDot appears) - check that this point is lower than the other dots in the M

Now also look for bigger M patterns that perhaps have a M within a M.

Pattern 2 m pattern then successful retest before major rally then Pattern 2 m pattern:

NOTE: The bar range of the low bar of the 1st m pattern was unusually small suggesting the final low was not yet in place. The 2nd m pattern occured with inverse head and shoulders. As always it takes skill to correctly interpret charts.

WARNING: Markets always have the potential to break prior support and resistance levels.

Pattern 3: w pattern - For an expectation of a decline in bullish velocity
This one will require a trained eye as it is not easy to spot. However, you will not want to miss this.
Step 1: BlL rises above BrL then BlL turns down (YDot or PDot appears)
Step 2: BlL falls below BrL then turns up again
Step 3: BlL rises above BrL then turns down (YDot or PDot appears)
Step 4: BlL falls below BrL then turns up again (look for a diamond shape)
Step 5: BlL rises above BrL then turns down (YDot appears) - check that this point is higher than the other dots in the W
As you can tell from the steps, the market is searching for direction. This pattern can occur when a market switches from a bull seasonal cycle to a bear seasonal cycle. Therefore, you will need to assess price activity to see if it matches your expectations.

Pattern 3 w pattern:

For further research look for the inverse m pattern.