Will E-mini S&P volatility increase before the end of the year? John Paul from DayTradeToWin.com thinks the Average True Range (ATR) will more consistently ride between regular levels. That means two to three points, on average. This is the ideal range for price action live trading. The ATR can be used with a daily chart. Daily charts are ideal for gauging monthly performance. In fact, this is what he uses to perform the year-long January Effect prediction.
No trading method is a crystal ball with 100% accuracy. The January Effect is a tool professional trades have used for years with relatively good historical accuracy. It’s been covered extensively on the Day Trade to Win Blog. That said, be cautious and know the risks of trading. Holding large positions over the course of days or weeks subjects your live trading account to great risk. Instead, look for smaller intraday opportunities. And of course, practice in simulation mode before going live.
Can the January Effect Be Used in Live Trading?
The first part of this webinar targets the January Effect. In case you haven’t heard, it’s a way to say the market is expected to trend up or down for the remainder of the year. It’s based on how price performed in the first month of the same year. For example, if the last trading day in January 2017 closes higher than the first trading day of January 2017, then the year-long bias is bullish. Bullish means the market is expected to go up. Is it possible the January Effect will be completely wrong? Yes, of course. Even if price rises consistently, will there be times when price will drastically fall? You bet – and that’s when you capitalize on the retracements.
Switch to a day chart and look at previous years. Take a look if January did in fact close higher. If it did, that’s a signal you can look for retracements and long (buy / bullish) opportunities. John Paul prefers seeing no fewer than four consecutive days of retracement. When price begins pulling back, you can add a Fibonacci Retracement tool (available on NinjaTrader). Make the tool’s display more appealing by changing the settings to only show lines at 0%, 50%, and 100%. Begin the bottom of the line at the low. Set the 100% for the previous high. When price approaches the 50% on a retracement, it’s showtime!
The goal is to hold it for a few points. Most traders do not have accounts that let them hold the trade for a full 30+ points. Also, doing so very risky. Better to make a smaller profit in live trading and look for safer options.