This concept looks to target market bottom reversals. 

• While not every FTD leads to a new bull market, there has never been a new uptrend without it.  

• When the S&P 500, Nasdaq 100, Russell 1000/3000 has a 'Follow Through Day' you want to consider entering into positions in the indices or specific stocks. 

• You do not need full positions, but this is where we can find the lowest risk for entry and potential for the greatest ROI.

• When the S&P 500 index is trending, look for individual stocks that could experience bigger moves than the index. Remember, the S&P 500 has stocks that are going both up/down and the average of them is upwards; this may mean that top performing stocks are moving faster than the index.

• Identify leaders and laggards.

Follow Through Day (Explanation of a Follow Through Day)

• Identifying the First Rally Day - Green candle closes higher than previous red candle close. It should be a strong green candle and not a doji or spinning tops; exceptions for hammers (especially at support).

• Identifying a Follow Through Day - Often 4-7 days later that has greater volume than the previous candle on average to above average daily volume

1. Typically green volume > red volume

2. Green candle closing > red candle close (Green candle closing above a red candle open is stronger)

3. Move should create a pivot or higher low to create a trend line; rally base rally can be effective, but not as strong

4. Look to enter on Follow Through Day or at market open the next day

• How to Invalidate a Rally Before a Follow Through Day - breaking the low of the First Rally Day

• How to Invalidate a Rally After a Follow Through Day - breaking the low of the Follow Through Day

Can Follow Through Days be Sooner?

• Personally, any quick follow through days within the next 1-3 candles are typically met with a quick downfall

• What goes up quickly, comes down quickly

• Most moves are gradual

• Consider a lower time frame (30 minutes to 4 hours) if you must play the initial break and exit quickly on a MA or trend line

Above: Covid Crash

• The Covid Crash saw the Follow Through Day nine (9) days later

• This rallied from $264.86 on 04/06/20 to an all time new high (ATH) of $479.98 on 01/04/22 an 81% move in less than two years

• $406.12 on 04/06/21 (53% ROI in one year)

• For those playing long, dollar cost averaging, investing in IRAs, or investing in targeted date mutual funds this strategy is highly effective in terms of ROI

Key Follow Through Day Statistics

• Distribution on Days 1 or 2 after a FTD fail 95% of the time

• Distribution on Day 3 after a FTD fail 70% of the time.

• Distribution on Days 4 or 5 after a FTD fail 30% of the time.

*Distribution - Sell off of market. Distribution days is a term related to distribution stock in the sense that heavy institutional selling of shares is taking place. A distribution day, technically speaking, occurs when major market indexes fall 0.2% or more on volume that is higher than the previous trading day (price is falling, but volume is higher).

Examples

Above:

• Red zone represents another failure with a lower low (initial candle is a gravestone doji; which is not a great candle for a rally)

• First Rally Day on green candle with high wick

• Five (5) days later we get our pivot, green candle closing above red candle open, and exponentially higher volume.

• Exit after close below trend break

Above:

• Red zone shows a failed rally (green 2 candle in zone) as it is invalidated with a lower low by the next candle

• Rally candle created (circle)

• Similar to other example we wait nine (9) days before our Follow Through Day. Note the pivot, green candle closing above the red candle open, and higher volume than the previous. Note that volume does not need to be higher than the average, just greater than the previous red day.

• Ride trend until close below trend break

Above:

• Red zone shows two failed failed rallies

• Rally candle created (circle)

• We wait five (5) days before our Follow Through Day. Note the pivot, green candle closing above the red candle open, and higher volume than the previous. 

• Ride trend until close below trend break. 

• Note how we created our trend line with two points that had a more horizontal, flatter, trend. We adjusted the trend after the next pivot to give us a tighter trend line. The pivot also offers us a point to add to our position.

Failed Examples and Patient Winners

Above: Failed Attempt

• Not all Follow Through Days will be winners

• We wait nine days for larger volume on a weak green candle (spinning top) that does not close above the red candle

• The next day we gap up, but the trend is short lived and soon falls off

• Unless we see a strong green candle closing above a red candle look to pass on the opportunity and find another time

Above: 3 Failed Attempts, 1 Successful FTD

First Red Box

• • Initial rally day  (large green candle - 2, first candle was a spinning top which we do not use). 

  • Soon after we see candles breaking the green candle low invalidating the rally.

Second Red Box

• We see the initial rally day (first green candle)

• There is a continued uptrend, but no volume bars that are greater than the initial candle or previous red volume day

• We want to see a strong green candle and higher volume than a previous red days volume

• Soon after the rally falters and creates a new low; barely, but invalidates the move

Third Red Box

• We see the initial rally day (first green candle)

• There is a continued uptrend with volume bars increasing, but we saw no red candles in between or opposing selling pressure

• We soon see a large red candle followed by several other red candles invalidating the rally with a new low

Follow Through Day

• We see our initial rally day (circle)

• On the sixth day we see our FTD with a green candle closing above a red candle and higher volume than the red candle

• In strong fashion, we have an engulfing candle (3 - the body of the previous candle is within the open and close of the newly formed candle signaling strength in the move)

Above: Failed Attempt

First Red Box

• • Initial rally day (large green candle - 2)

  • We go 16 days before we finally see a green candle with volume higher than the previous red candle volume

  • FTD's should be within two weeks (10 days) from my personal charting 

  • Additionally, the move is a rally base rally (see rally base rally and potential strategy) and not a true pivot (creating a higher low)

Second Red Box

• We see the initial rally day (first green candle)

• There is a continued uptrend, but no red candle 

• Next candles create a new low invalidating the rally

Follow Through Day - not an optimal entry

• We see our initial rally day (circle)

• On the sixth day we see our FTD after a rally base rally

• Remember, the 200MA (purple line can server as support and resistance, but often can act as a magnet when price action nears the MA. In this case, we see it steadily hit the 200MA before pulling back

• Not the best entry, but consider the low of the red spinning top for exit