Every year, traders look to price activity in the month of January to help predict what may happen for the rest of the year. The pattern they observe is called the January Effect, and it's what John Paul from Day Trade to Win uses in this video. In short, the January Effect can only be used once January is over. That means traders will have to wait until January 31, 2017 to know the expected direction of the market. If price closes higher by January 31 than it opened earlier the same month, the market is also expected to close higher in December. John Paul talks about the historical accuracy in this video, showing multiple years where the prediction was correct.
The January Effect can be used as a trading method. One way is to wait for breakouts. If you think that price will inevitably rise higher over days and months, then you can wait for price to sink and catch it on the way back up. John Paul explains how NinjaTrader's Fibonacci tool is used to find opportunities when price retraces 50% of the way back up. He believes that's the best time to enter as price "proves" it wants to continue the upward trend. If 2017 behaves like previous years, then there will be many long (buy) trades that will be good.
At first glance, you may notice the Fibonacci tool he's using looks a little different than the normal configuration. All you need is the 0, 50 and 100% values. Simply add the Fib tool to your chart, uncheck the other values, add in the 50%, and voila, a similar price action tool. Going forward in time, you can copy and paste existing Fib tools to save time on setting them up all over again.
Let's eagerly await January and hope that price does close higher because that means more opportunities for traders in 2017!
The January Effect can be used as a trading method. One way is to wait for breakouts. If you think that price will inevitably rise higher over days and months, then you can wait for price to sink and catch it on the way back up. John Paul explains how NinjaTrader's Fibonacci tool is used to find opportunities when price retraces 50% of the way back up. He believes that's the best time to enter as price "proves" it wants to continue the upward trend. If 2017 behaves like previous years, then there will be many long (buy) trades that will be good.
At first glance, you may notice the Fibonacci tool he's using looks a little different than the normal configuration. All you need is the 0, 50 and 100% values. Simply add the Fib tool to your chart, uncheck the other values, add in the 50%, and voila, a similar price action tool. Going forward in time, you can copy and paste existing Fib tools to save time on setting them up all over again.
Let's eagerly await January and hope that price does close higher because that means more opportunities for traders in 2017!
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