What if You Could Forecast 2021 With 90% Accuracy?
John Paul from DayTradeToWin believes this is possible. For many years, he has successfully used his January Effect method to correctly predict if the year will close higher than it opened. The January Effect applies to the E-mini S&P 500, but you can test it on other markets. Note that Wikipedia describes the E-mini S&P 500’s avarege daily implied volume as “…over $100 billion, far exceeding the combined traded dollar volume of the underlying 500 stocks.” So if the E-mini is saying, “It’s going to be an up year, ” it’s worth paying attention no matter what markets you like to trade.
At the time of writing, January 2021 is not yet over. That means we truly do not know yet if 2021 is expected to be an up year. By February 1, 2021, we will be able to look at January and say, “Yes, January’s closing price is greater than the opening price, therefore the January effect is in effect so we expect December 2021’s E-mini S&P price to be greater than January 2021’s closing price.” Hopefully this makes sense – this is the January Effect in a nutshell, but there is more.
If you know the year is expected to be an up year with decent historical evidence, you can assume price drops will retrace and, in most cases, surpass the prior high. Thus, you can look for retracement opportunities. John Paul from DayTradeToWin explains one such method of identifying a long (buy) opportunity once price has bullishly retraced 50% to the prior high. The idea is to profitably ride the bull to 100% or more of the prior high. Keep in mind, this is a multiday trading method. Your account will need to support “swing trading,” as it is sometimes called. For the more common intraday trader, simply looking for those retracement days and using another system such as the Atlas Line, Trade Scalper, Roadmap, etc. for further confirmation, may be the best bet.
A couple of reminders – switch to a day chart to get a sense of how the month looks. At the time of writing, January is about 200 points higher than it opened. If the month were to end right now, this would well qualify 2021 as an up year according to the rules of the January Effect.