We’ve posted about the predictive/forecast method called the January Effect for a number of years. Now that we’re at the end of January 2020, we can soon look to use this long-term, historical method to predict if price will ascend to new heights by the end of 2020. This information is useful for futures, options, currency, and stock traders.
To summarize how the January Effect works, we look at the E-mini S&P 500 price value at the start of the 2020 (January 2, 2020). We compare the value with price on the last day of trading for the month, January 31, 2020. If the later price is higher, we say the January Effect has predicted that 2020 will be an “up year.” By “up year,” we mean that in December 2020, the E-mini (and other important market derivatives/measures) will close higher for the year than the closing price in January 2020. To put it simply, if January was an up month, we expect 2020 to be an up year overall. That said, there are no guarantees the January Effect will be correct. However, we have found it useful for identifying long-term breakout buy/long opportunities as we have chronicled in past videos.
As discussed in this video, price is currently near levels in early January. There are a few days left in the month. Watch how price performs on January 31, 2020 to see if 2020 is considered an up year. If price closes lower, we will say that there is no January Effect in play for 2020. Yes, the year may actually end up higher, we just don’t have the historical benefit/indication of the January Effect.
Based on the Jan. Effect, when should one buy? We wait for price to break previous highs. This may include swing trading. We also wait for a four-day retracement. Please watch the video to get a better sense of how this free trading method works. The explanation of placing trades related to the January Effect begins around 4:00 in the video. To better understand how this all works, use 2019 as an example, as John Paul did. Also, you can configure NinjaTrader’s Fibonacci tool to show horizontal lines for 0%, 50%, and 100% of a drawn distance, which is a good visual aid to identify areas to place trades.