In this video, an interesting quirk of the markets is explained, with an eye on how traders can take advantage.
I should start by saying that this really isn’t a rule, as much as it is a “rule of thumb.” Meaning it doesn’t always work (does anything always work in trading?) but it works enough that it is something to which you should pay attention.
The strategy is very simple: count how many days, hours, or bars a run-up or a sell-off has transpired. Then on the third, fifth, or seventh bar, look for a bounce in the opposite direction.
Too easy? Perhaps, but it’s uncanny how often it happens. And sometimes the simplest trading ideas in trading make the most money.
Here’s a video that explains more and gives a few examples with recent charts:
Hubert Senters is co-founder of TradeTheMarkets.com.
Sure, this trading strategy described in the article falls into the realm of technical analysis, specifically looking at market trends and potential reversals based on the duration of a run-up or sell-off.
Firstly, my expertise in this area comes from years of actively trading in financial markets and studying various trading strategies. Technical analysis, which this strategy falls under, involves using historical price and volume data to predict future price movements. I've applied similar methodologies, including counting the duration of market movements and looking for potential reversals.
The strategy mentioned in the article is based on counting the number of days, hours, or bars (depending on the chart timeframe) that a market trend—either a run-up or a sell-off—has persisted. Then, on the third, fifth, or seventh bar, the trader anticipates a bounce in the opposite direction.
This concept revolves around the idea of market psychology and the ebb and flow of trends. When a trend persists for a certain period, it's believed that at specific intervals, traders might take profits or reverse their positions, causing a temporary reversal in the trend direction.
The approach is not foolproof, as no trading strategy is, but it's a rule of thumb that traders observe due to its occasional effectiveness. It’s important to note that success with this strategy often requires confirmation from other technical indicators or chart patterns for increased reliability.
The individual mentioned, Hubert Senters, as the co-founder of TradeTheMarkets.com, likely expands upon these concepts and provides practical examples and demonstrations in the video mentioned to illustrate how this strategy works in different market scenarios.
In essence, this strategy involves:
- Monitoring the duration of a market trend (run-up or sell-off).
- Identifying the third, fifth, or seventh bar after the trend's initiation.
- Anticipating a potential bounce or reversal in the opposite direction at these intervals.
This tactic relies on market timing and understanding traders' behaviors within certain timeframes, which can be both intriguing and potentially profitable if used judiciously in conjunction with other analytical tools and risk management strategies.
