The problem is with timing. For example, during bull markets it can take a long time to form a top. During that time, the Cheese Factor will stay red, while traders get increasingly more bearish in anticipation of a top. How can we time it, so we don't commit too soon?

To better identify turning points, we have devised a secondary indicator called Cheese Forecast (the yellow line). It smooths out the green/red bars and inverts the shape to match the market. The idea is to have something that will correlate with the market in terms of direction. So, when the yellow line turns up, the market should turn up and vice versa.

How to use the Cheese Forecast

When following the Cheese Forecast (the yellow line), we are basically looking for reversals. Each reversal on the yellow line should be followed with a reversal on S&P. That's the theory, anyways. Obviously, it won't be a 100% match. We are basing our indicator on a group of traders, and they can be off. But most of the time, they are pretty darn close.

Here are some examples of reversals:

On this 1-month chart, the market makes a local bottom around 11/16 (Cheese Factor is green). After this, it turns to the upside and starts topping between 2090 and 2100. The Cheese Factor becomes red and stays that way, with the Cheese Forecast (yellow line) finally topping and rolling over around 11/23. The last segment of the yellow line is pointing down suggesting more market downside.

This 3-month chart from 2016 demonstrates the challenges of keeping up with the market. The Cheese Forecast reverses several times, with the last reversal to the downside around 4/17, which would make us catch the top of the market around 2100. The market then drops slightly to around 2075, at which point the yellow line starts to zigzag (around 4/19). Learn to ignore these smalll zigzag patterns -- they are not considered a genuine reversal.

STEP ONE: Choose your time frame

It is up to you to select an appropriate time frame which best suits your habits and risk tolerance. On a smaller scale, the Cheese Forecast (the yellow line) will reverse more often. This would mean more trades, perhaps more stopped out ones too. On a larger scale, the reversals are fewer, but you may miss the exact point of turnaround.

Sometimes it may be a good idea to open your trade based on one time frame, and close it based on another. For example open based on 3-month Cheese Forecast, and close based on 2-month. The reason behind this strategy might be that once you have a profit, you want to protect as much of it as possible and a 2-month chart will be quicker to register a turn.

STEP TWO: Buy when the Cheese Forecast turns up

In this context, buy means buy the market and/or cover your bearish position. The Cheese Forecast will start turning up at the bottom of S&P run (leg). This assumes you are working with your chosen time frame. How much should the yellow line turn before we consider it a buy? You should observe a clear change of trend on the yellow line before committing.

Here are some examples of buying:

This 1-month chart shows a classic scenario leading up to a market bottom. As the Cheese Factor becomes green, the bullish sentiment (green bars) is building up gradually until the bottom forms. The Cheese Forecast (the yellow line) finally turns upwards to indicate the bullish sentiment has peaked and it is OK to jump in. This chart also illustrates the importance of patience. Don't jump in when you see the first green bar -- wait for the yellow line to reverse direction.

Another intermediate market bottom. We see bullish sentiment build up at the beginning of January, then reverse with market coming back down to retest the lows. In both cases, the Cheese Forecast (yellow line) changes direction to indicate a peak in bullish sentiment.

It should be clear that all your usual rules about how to manage your positions should apply. We are not trying to teach you how to do that.

STEP THREE: Sell when the Cheese Forecast turns down

Again, sell means sell (short) the market and/or close your long positions. The Cheese Forecast will start turning down at the top of a S&P run (within your chosen time frame). The amount by which the yellow line reverses trend is again important. You should not act on every twitch of the line -- you must ovserve a clear trend change.

Here are some examples of selling:

	On this 3-month chart, the market makes a huge turnaround following the August '15 crash, then rallies towards the end of the year. In October, we start seeing red bars indicating slow buildup of bearish sentiment. Finally in early November, the Cheese Forecast (yellow line) turns downwards marking the peak of sentiment. This would be a good time to put on a bearish trade.
	Another 3-month chart showing the market topping in mid-October. The last leg of the market, which rallies from the beginning of October ends with a buildup of bearish sentiment (red bars). The Cheese Forecast (yellow line) follows the market up, but then reverses itself indicating a good time to place a bearish trade.