I call it the Tubbs Model, because I first read about it in Frank Tubbs' "Tubbs Stock Market Correspondence Course" but it is a model that was well known in the 1920s. It is, in effect, a simplified version of the Wyckoff model but nevertheless provides an effective roadmap for price action.

THE MODEL

Click to enlarge

ASSUMPTIONS

There are two assumptions that have to be made if we are to use the model effectively:

1. Since markets are fractal, the trader has some means of distinguishing between time frames. I use Barros Swings to do this.  

2. The trader has some means of distinguishing between Accumulation/Distribution Patterns and pauses in a trend i.e. he has some way of distinguishing between changes in trend and corrections.  

THE PATTERN (Upside Breakout)

At some point in a downtrend, selling interest abates and accumulation begins. I use the volume/range relationship at the top and bottom of congestion to help me identify this action. For example, given the appropriate context, at the Primary Buy Zone:

• Below normal volume and normal true range would indicate a lack of selling interest.
  
• Above normal volume and below normal true range would indicate enough buying interest to contain the sellers.

In both cases, we see a reduction in the downtrend.

Once the selling interest is contained, there will be a breakout. On this breakout, I like to see greater than the normal volume and greater than normal true range when compared to the volume and ranges within congestion. On the other hand, I would not like to volume and range that is excessive when compared to the volume and range in the trending sections of the downtrend.

The reason for this excessive volume often leads to a deep retracement (even if the breakout is genuine). When this occurs, it is difficult to determine if the breakout is genuine.  

Generally I don't take the breakout trade. I prefer to see the quality of the retest to the Primary Sell Zone. We should see below normal volume and below normal range on the retest. This volume/range combination is evidence that the breakout is true.

Once the new uptrend is underway, we can expect to see a pause in the uptrend. Most times I expect to see the pauses take the form of a complex correction. This comes from Pete Steidlmayer's (Market Profile Originator) idea that the purpose of markets is to find 'efficiency' and he defines 'efficiency' as the bell curve. The closest the markets come to a bell curve is a sideways correction.  

As some point, buying interest comes to an end, and selling interest starts to predominate (Distribution Stage), then there is a downside breakout and the cycle begins anew.

PRIMARY ZONES

I calculate the Primary Zones by taking the range of congestion and dividing by 8. The Primary Sell Zone is High - 1/8 Range; the Primary Buy Zone is Low + 1/8 Range.  

That's an outline of the pattern. I'll now turn to an example of its application by considering the S&P.  

THE S&P, AN EXAMPLE OF THE TUBBS MODEL IN ACTION.

Figure 1 shows the monthly chart with 12-period Barros Swings shows the yearly trend. We see an expansion of the original boundaries of congestion (A, B) at C and D. The failure to follow through with a downtrend after the breach of A by D provides a buy signal with a target to at least the Primary Buy Zone at 1577 to 1476 and the probable buy zone of 1736 to 1576.  

Figure 2 is a weekly chart with a 13-period swing - quarterly trend. It shows a probable pause with point 'a' being established. Point B will be indicated when the line turns, currently this price is 1140.205 and will be confirmed at the 78.6% retracement of 'ab'.  

So, you can see how the Tubbs Model provides a most useful evaluation.

By the way, I produce a free update on the S&P on the blog, weekly video with daily updates - see http://tradingsuccess.com/blog/

Figure 1 S&P 12-M Swing

Figure 2 S&P 13-W Swing

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