instructions

Strong and weak reversals after FLIR.
And a slightly confusing picture.
Note the confusing 4/23 action after the 4/22 FLIR.
But action after the 4/28 FLIR is clear and robust.

A weekly FLIR is based on a weekly chart. Thus, it must be read as indicating action relative to the upcoming week(s). All weekly FLIRs use the Monday's date as the date for that week. Assuming that the FLIR is correct, it shows that the extreme of the FLIR week will be the extreme of the current trend. BUT, because it's weekly rather than daily, there are two important points to keep in mind: first, the high or low extreme of the week may occur at any time during that week; second, the reversal does not begin until "sometime" during the week that follows.

Examples

This example of a weekly FLIR breaks the FLIR week into days. You can see that, in this case, the extreme point of current trend did not show up until the third day of the week. The point of knowing this is that you should wait until price reaches or passes the high (or low) of the previous week before making your move. Or, for safety's sake, you may prefer to wait for the action of the reversal period (not shown here) before entering long or short, thereby perhaps sacrificing some gain potential in exchange for safety.

This same example looks at the reversal week (the week following the FLIR) and breaks it into days. You can see that, in this case, reversal showed up on the second day of the week. The lesson here would be, had you been placing a short trade, to enter as near to the high of the FLIR week as possible, since FLIR tells you not to expect a price any higher than that. Here, the Monday of the reversal week would have been ideal. An opposite logic would apply to reversals to the upside, i.e., you would wait for price to go below the low of the previous week before considering entry. Or, for safety's sake, you may prefer to wait for the action of the reversal period before entering long or short, thereby perhaps sacrificing some gain potential in exchange for safety.

No single system captures all. It's therefore important to use technical analysis (TA), news, and fundamentals with FLIR. As you have seen, some FLIRs offer only the tiniest margin of gain and therefore only the tiniest margin for error. Also, since FLIR does not indicate the strength or duration of a move, the wise trader will apply other tools as well.

Danger signs. One major danger sign that a FLIR has gone wrong (it does happen- see the DJIA discussion on the main FLIR page) is when you see the supposed reversal period exceeding the supposed FLIR extreme. What has happened is that FLIR has identified a MOMENTUM CHANGE (continuation) rather than a reversal- it's rare but dangerous. At such a time, EXIT immediately and go find a better play, or you could play the continuation.

Another major danger signal is when the reversal period offers a "screwy setup", as in the BAC example above, where a white 4/23 hammer showed up the day after FLIR. Any kind of confusion, anything less than near perfection, should be taken as a warning to exit and live to fight another day. Good money management is the key to success with any system and, good as FLIR is, you're still going to have "those days".

FLIR on a sideways issue is specially dangerous. Although popular mathematical wisdom is that 90% of the time the breakout is to the upside after prolonged low volatility, that other 10% can kill ya.

Momentum changes after FLIR are very rare but fierce when they occur. My personal opinion on this is to play "hands on" that first day of each trade, just in case it's a momo change instead of a reversal.

Despite these kinds of FLIR failures, we've just added a discussion of FLIR "failures" which really aren't failures at all (see below), but very important and useful FLIR signals.

To sum up, using FLIR is like sailing- great fun but always wear a lifevest! Good luck to you!

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Sometimes you will see a FLIR point contained within the previous period's candle, i.e., it makes neither a greater high nor a greater low (nor equal high or low) compared to the previous period. Although we originally thought these were FLIR failures, we are learning that they are often powerful signals of a reversal.

Two Examples.