Whether you are an IBD position trader or not, you will want to know when a new attempted-rally becomes a “confirmed rally” with a Follow Through Day (FTD). Read the info below and you will realize that you should not bottom-fish until you see a follow through day.
When the market is in correction (now). An attempted rally starts on the first up day off the bottom or a reversal day like today (8/5/24). If the market goes below that low price, we start over. If it stays above, we look for an FTD in day 4 or later.
From Stock Guide 2024Q1
- Always buy something on an FTD.
- FTD is a substantial jump (at least 1.25%) of Naz or S&P on higher volume than the day before on Day 4 or later of a rally attempt
- Not all FTDs work, but no bull market rally in history has ever started without one.
- The key with FTD is to be selective with your buying and start with smaller position sizes
- Find the strongest leaders, avoid the laggards.
- Start with leaders with proper setups, and if it works, put more money to work. That is, get confirmation your trades are working
- In the downtrend, maintain your watch list
- New leaders will often have RS lines near new highs and 90+RS
- The biggest money is made at the beginning of new uptrends when the future leaders take off and begin their ascents
How to Classify Rallies
| Rally Type | Length (Post FTD) | Gain | Frequency |
|---|---|---|---|
| Whipsaws | <= 15 days | Doesn’t Matter | 26.5% |
| SLOGS (Small Losses or Gains) | > 15 days | <= ± 3% | 41.3% |
| Money Maker | > 15 days | 3% < Gain < 15% | 25.9% |
| Life Changer | > 15 days | > 15% | 6.3% |
**End of Rally is when IBD calls Market Correction.
- About 33% of follow through days produce rallies where you can make money
- An additional 41% will produce rallies with Small Losses Or Gains (SLOGs) and give enough time to make a safe exit
- Conclusion: Follow through days are a good buy signal, but money management is key.
- Transcript Notes:
- It looks like 74% will make money, but the lesson learned is to not invest too much money in at the start of a rally.
- Like IBD says, start with a couple of stocks and see how they do.
- In some following slides, you will see some other signals to help.
- The first 3 days are important because if you see professional distribution on day 1,2, or 3, that is a yellow flag and rally will rarely be good. If 2 of first 3 days is distribution, there has never been a “Life Changer” rally after that.
- The first 25 days are also important, you want to see some subsequent FTDs, as major rallies average 2 to 3 subsequent FTDs and about 8 accumulation days.