If you’ve been looking at DayTradeToWin.com for a while, then you’ve probably come across one of the January Effect videos. The January Effect is one of their strategies that predicts market activity for the entire year will trend up if the month of January (for the same year) has also trended up.
If that happens, the January Effect is in play. John Paul believes you can use the regular upward moves to find big trading opportunities that you can hold for multiple days. To find the January Effect, you need to be in February or later. January needs to prove that it trended up.
Look for the market movement from January 2 (remember, January 1 is a holiday) and compare it with January 31. If January 31 has a higher closing price, you’ve got a January Effect year.
Now, let’s focus on applying the trading strategy. Price is expected to move up. We know that. However, that does not mean price will do nothing but rise for 11 more months. Of course, you need to expect price to fall, and sometimes significantly over multiple days. These bearish periods are what you need to look for as a starting point.
After a few days of this, price may start to retrace back up. Use the Fibonacci tool to draw three lines: one at 0%, the other at 50%, and the last at 100%. By measuring between to points, you can determine the halfway (50%) point. Wait until price retraces through this halfway point with good volatility. Then you can enter the trade (at your own risk – substantial losses may occur) and hopefully right it up into a profit target.
Not everyone has a brokerage account that allows for holing positions through multiple days. Check with your broker first. In the beginning of the video, you can see one of the intraday strategies, the Atlas Line. In comparison, with the Atlas Line, you’re only holding trades for a maximum of 20 minutes.
If your profit target or another stop loss gets hit first, you’re out earlier. The longer you say in a trade, the greater the risk. The market can do wacky things at any moment, especially at night where volatility can slow down, then ramp up as the main trading day is underway.
Generally, the Atlas Line plots one line per day and provides a number of signals. We recommend using it with NinjaTrader 8.