In this initial part, the market resides in a state of Homeostasis. Price action remains tethered to the moving average, reflecting a period of equilibrium where valuation is stable and deviations are negligible. This phase serves as the primary baseline—a neutral zone where the market is effectively at rest. One must monitor this phase closely, waiting for the inevitable expansion that signals the end of the system’s quietude.
The transition to Stimulation occurs when price aggressively departs from its anchor. Utilizing a Control Chart, we establish the moving average as the Center Line (CL), allowing us to define the critical boundaries at +3 Sigma (UCL) and -3 Sigma (LCL). When price hits these extremes, the market has entered a state of positive or negative Stimulation. This is the overstretch moment; the volatility is statistically unsustainable.
The final part is triggered when the prices return from the Stimulation phase back to the Homeostasis. This is the pivot point where the AB-Process takes hold. After few stimulations, the A-Process tends to continue the initial stimulation; however, after many stimulations, the B-Process inevitably reverses it. This Opponent Process is the market natural mechanism to react once the initial stimulus has faded. Momentum shifts here.