Detecting market phases as described by the book: if the asset forms higher highs, it is an uptrend and vice versa—if the asset forms lower lows, it is a downtrend. If these patterns are broken, i.e., lower lows in an uptrend or higher highs in a downtrend, it is an accumulation or distribution phase.
The algorithm is based on the raw market movement algorithm. As a result, the trend begins after the asset breaks the high/low and reaches a specified threshold depending on volatility, which makes it a leading indicator. Traders are advised to wait for the pull back after the trend forms (i.e., high/low is broken).
When comparing the raw market movement algorithm to the other algorithms based on highs and lows (e.g. Zig Zag), our algorithm does not consider the time period of a movement to be significant, but rather the size of price moves. As a result, a trader, who is using the other algorithms, can catch the beginning of a trend after some time, but with our algorithm, he can catch the beginning sooner.
It helps to catch the beginning of a trend in early stages based on the raw marker movement algorithm.