Identifying Market Bottoms with Follow-Through Day
As is well known, stock market cycles are neither completely predictable nor are they arbitrary and random.
In fact, technical investors often use various ways to aid their trades and even predict short-term trends in the market. Today, moomoo Learn brings you a technical concept—FTD, that is, follow-through day.
When a major stock index, such as the S&P 500, finishes at a higher price than the previous day following a new low, it indicates that the market is striving to rally.
Stock prices cannot fall below Day One on the following two days. The rally is live as long as stock prices stay above this benchmark.
A follow-through day will then be confirmed on the fourth day or later as a substantial increase in price and volume in the major stock index. If a follow-through day occurs, it's a sign that the market may turn bullish for the long term.
A follow-through day is a day of significant trade volume (a higher trading volume than the prior day) and stock price increase (at least 1.25%) after the stock price has not fallen below at least three days (usually between 3-6 days) to the recent low .
It's impossible to know for sure whether the rally will succeed, but a follow-through day can signal a recovering stock market, which can help assess whether the rally will result in a long-lasting upswing.
According to historical data, no bear market has ever turned bullish without a follow-through day.
Generally, when headlines are flooded with news that tough times for the market are coming to an end, the average investor often has little or no room to benefit from a higher share price. Therefore, it is very useful for investors to learn how to identify market bottoms and enter a recovery market early by keeping an eye out for a follow-through day.
A follow-through day occurred after the market crash caused by the outbreak of the COVID-19 pandemic in 2020.
After the S&P 500 crashed and bottomed on March 23, the index began to rally, and eight days later, it surged 2.3% in higher volume than the previous day on April 2 2020, which was identified as a follow-through day.
Investors may choose to restart buying if they see a follow-through day as an indication that a bear market is ending.
Technical indicators are among the most popular tools used by traders to determine whether the market has reached a solid bottom. Investors can use the following signs to determine when a bull market is about to start:
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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agar agar : Interesting read. I used to learn from another guru that a trend is reversing when the price hits above the last high. I will use this in conjunction with the trend reverse technique to spot a trend reversal.
GoLeopard : From the web:
"A follow-through day is Day Four or later of a bear market rally and is defined by a gain of at least 1.25% with a larger trading volume than the previous day. Although a follow-through day signifies a recovering stock market, the market can drop again."
Just to clarify:
On the chart above, the fifth(day 5) green candle is not considered a follow-through day due to its volume lower than 1.25% of the previous day? how is the one identified in the chart different from the 5th green candle?