December 31, 2016
Trades & Tutorials
By Geoff Bysshe
January Has Had This Pattern in 8 of the Last 11 Years, and You Can Profit From It.
After a strong bull run from 2009 to 2016...
What if the market stalls out, and becomes range bound for 20 years!
It’s happened before.
Below you’ll find a monthly chart of such a period. From 1963 to 1982 the Dow traded basically between 650 and 1000. This could be viewed as a nightmare for trend followers, but it doesn’t mean there aren’t great swing trading opportunities.
During this difficult period, the month of January consistently provided great opportunities to start each year and more. Its range indicated when there was a trend worth following for the current year, and often when a trend was reversing.
I’ve also created a video that will explain the January Trend Trade in a little more detail here, but it will only be available for a few days, so I’ve included additional insight below.
The Dow Jones Industrial Index Monthly Chart (1963-1982)
A Couple Ways To Profit Using January
The green lines on the chart below represent the high of the month of January and the red lines are the low of the month.
If you view these lines as key inflection points, you’ll see that you could have found big trend trading opportunities in back to back monthly moves if you’d traded with a simple bullish bias when the market was above the January high, or when it traded below the January low and then traded above it.
Additionally, for traders familiar with MarketGauge’s Opening Range Reversal strategy you’ll find this strategy worked quite well. You’d need only to apply the same concept we teach in the A.M. Trader course for day and swing traders to catch the beginning of trends on an intra-day time frame!
January Has Done This 56% of The Time Since 1926, and
8 of The Last 11 Years
You may also have noticed another pattern in the chart on this page.
More often than not, the open of January will occur near the high or low of the month. Putting some numbers on this to quantify this idea, I found that 56% of the time (from 1926 to 2015), the Dow opened with in 25% of its high or low for the month.
I tested a distance of 25% because at 25% from the extreme of the month the opposite extreme represents a move 3 times greater, and potential for a good risk reward trade setup.
In the range bound period from 1965 to 1982 this happened 67% of the time, and in the last 11 years it’s happened 72% of the time!
This one of the reasons I’ve advocated that January can change the direction of a market, has its own specific patterns, and can provide great trades regardless of what happened in the year prior or the months ahead!
This tendency to trend is not limited to the Dow. The same patterns can be found in stocks and ETFs.
Plus, it’s not uncommon to find bullish trends in a bearish markets and vice versa.
So get ready for January!
Watch for trends to develop quickly, and use it to identify big trends in progress.
As part our Holiday Special training I’ve included a free video on the concept of January Trend Trades.
Additionally, we’ll hold a live training for Holiday Special members on January 4th to teach strategies and tactics for capitalizing on the January Trend Trades so you can catch the beginning of the trends WITHOUT waiting for the whole month’s trading to finish!