Defining the components: levels of analysis
The long-term trend of any company's stock is driven by a number of factors, both internal & external. It is this mean trend that long-term investors follow ? it is based on growth and successful adaptation.
Many short-term factors can drive a stock's value to deviate from its mean trend (e.g. mistakes, good luck, investor fashion, etc). Traders rely upon one of these at a time and their focus is short-term gain.
By analyzing the deviations from mean trend through our three-step approach, we arrive at a better definition of risk than standard market methods offer. We also have a clearer idea of when structural, sustained changes are taking place.
This approach can show why points 0, 1 & 2 can be seen ahead of time as points of return to mean trend; whereas, point 3 is seen as establishing a new mean trend. This has nothing to do with short-term tools such as charting, but everything to do with fundamental, interactive analysis.