http://www.phy.ntnu.edu.tw/java/trafficControl/trafficControl.html
A Trading system has to have signals which can be easily understood and followed without alot of ambiguity. Three possibilities exist: long, short or flat.
Often there is a transistion period between exits and entries with the ideal buy not occuring instantly after a short is covered for instance. The Risk reward in this area is not great enough to warrant taking a chance.Trading reversals takes great skill and involves greater risk than waiting for a reversal to occur and a new trend to establish itself.
On any large sell off a time for a base or support to establish itself is much more common than a rapid V shaped bottom. In many instances a trader hoping to pick a bottom will not allow enough time to elapse to gauge whether the buying that is occuring is simply shorts taking profits by buying to cover or whether new buying is occuring. In an absence of new buyers when the shorts have finished covering the contract is likely to slump again and test the low.
So the sequence would run: Buy and sell at a profit, wait for profit taking to exhaust itself, trend reversal, short and cover after a drop, wait for profit taking to end and buy the new uptrend etc. Sometimes you have repeated rallies or sell offs which each could be traded as a continuation of the trend so you could continue taking advantage of the trend.
A Chart example:
