Stage 2: Markup (Bullish Trend) /\ / \ / \ Stage 3: Distribution (Top) / \_______ / \ Stage 1: Accumulation \ Stage 4: Markdown (Bearish Trend) ____/ \ \____ Stage 1: Accumulation
The fundamental thesis of Shannon’s approach is that price action does not exist in a vacuum. A stock might look bullish on a 5-minute chart but be hitting a major resistance level on a daily chart.
This is where traders make money. The 10, 20, and 50 SMAs align upward. The trend is your friend. Look for long opportunities on pullbacks. Stage 2: Markup (Bullish Trend) /\ / \
Trail the stop-loss using a short-term moving average (like the 10-period or 20-period exponential moving average) on the execution timeframe as the trade moves in your favor.
Avoid trading heavy size here; capital can get locked up for months in a sideways market. Watch for a breakout above resistance. Stage 2: Markup (The Bullish Trend) The 10, 20, and 50 SMAs align upward
The price breaks below distribution support. The asset forms lower highs and lower lows. Moving averages slope downward, acting as resistance. This is the optimal environment for short positions or cash preservation. Implementing the Three-Timeframe Framework
Before using multiple timeframes, you must understand what you are looking at. Shannon simplifies market psychology and price movement into a four-stage cycle that describes the life of any trending move. This framework is the foundation upon which all his strategies are built. Recognizing the stage of the trend on the higher timeframe dictates your bias and strategy on the lower timeframe. Trail the stop-loss using a short-term moving average
Price breaks below the Stage 3 support levels. The asset sets lower highs and lower lows. Moving averages cross over and slope downwards.
Used to identify the primary trend and major support/resistance levels (e.g., Daily or Weekly charts).