Probability of Rally Failure is 90%
There is an important study, that estimates the success of a Follow Through Days depending on how close a Distribution Day is observed. Look at the annotated chart on SPX.
In essence if we observe Distribution Days close to the FTD then the probability of Failure is high. (Failure is defined by undercut of the Day 1 Rally Day [RD]). Study is courtesy of IBD Research. I have annotated the zones in Red, Yellow and Purple below.
🟥 Red Zone - Distribution Day 1-2 days after FTD: 95% Failure Rate
🟨 Yellow Zone - Distribution Day 3 days after FTD: 90% Failure Rate
🟪 Purple Zone - Distribution Day 4-5 days after FTD: 30% Failure Rate
We observed first Distribution on Day 3 and another one yesterday on Day 4 (white bars on chart) - this is why I have labeled all my trades as High Risk - since, I wanted to see how we are to perform first week after FTD.
In essence if we observe Distribution Days close to the FTD then the probability of Failure is high. (Failure is defined by undercut of the Day 1 Rally Day [RD]). Study is courtesy of IBD Research. I have annotated the zones in Red, Yellow and Purple below.
🟥 Red Zone - Distribution Day 1-2 days after FTD: 95% Failure Rate
🟨 Yellow Zone - Distribution Day 3 days after FTD: 90% Failure Rate
🟪 Purple Zone - Distribution Day 4-5 days after FTD: 30% Failure Rate
We observed first Distribution on Day 3 and another one yesterday on Day 4 (white bars on chart) - this is why I have labeled all my trades as High Risk - since, I wanted to see how we are to perform first week after FTD.
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