Back in early February, we posted about how the January Effect forecast predicted the E-mini would close at a higher price in December than the price at the end of January. The January Effect is used to predict overall market direction for the year. The strategy can be used for swing trading.
By switching to a daily chart, you can get a better idea of annual price activity. Since April 2018, we have seen price rise to higher levels. In fact, the four arrows show positive monthly price action. This may be an indication the January Effect is correct. We’ll need to see how the rest of the year pans out. However, if you are confident in the forecast, you can find long opportunities for swing trading.
Swing Trading Using Fibonacci
The swing trading strategy uses a simple Fibonacci tool. Many platforms have them. In NinjaTrader, the tool can be configured to show three levels: 0%, 50%, and 100%. When configured this way, you can easily find the halfway point between two price values. By identifying the recent highs and lows and the halfway point, we can look for long opportunities that match the anticipate long direction predicted by the January Effect. Jump to 3:28 in the video for an example. When price surpasses the 50% point during a retracement to the recent high, that is the entry. The idea is to ride price up and hopefully get out with a profit.
Keep in mind that this type of trading requires you to hold a position over many days. Not all brokers and accounts are equipped. The longer you’re in a position, the more risk you’re subjected to.
Will price continue to stay above the 50% level established earlier in the year? Only time will tell. Will the 2018 January Effect maintain its historical accuracy record? We’ll have to see!
Sign up for the next Mentorship class to gain more insight. We have a new class that begins on August 14, 2018.