Low Volatility and High Volatility Market Examples
Low Volatility and Trending Market Usage:
In order to get the most out of the EquiPredict forecasts and Newsletter alerts, it is prudent to combine the EquiPredict projected forecasts with an indicator of your preference during periods of lower volatility and trending markets.
Charts included here outline a best practice when using the forecasts.
The above chart shows a simplified EquiPredict model (red line) forecasting a rally on or just after 4/11. Those considering going long on the exact forecast date may do so, however, it is often best to wait for price to confirm. A confirmation (trigger) of the signal to buy (the projected rally date) might be a break above a downtrend line, or cross and close above a moving average, or close above a price channel. These are merely suggestions. However, price action should be your first and final point of reference. Trade what you see.
The subsequent chart here shows a rally commenced. We have three pieces of strong, supporting evidence that the rally has legs.
A) Price action broke above the downtrend line
B) As price action broke above the downtrend line, price never reached prior significant support
C) The “double bottom” after the downtrend break produced a higher-low, further supporting evidence of strong demand for the stock
Higher Volatility Market Usage:
In the event of higher volatility, such as in the chart below, the EquiPredict model still functions as it should. But during these times it’s critical to focus on the calendar more so than on pure price action. Here is an example of what this means:
In the example above, a clear rally signal was given by the EquiPredict forecast model (red line), in advance, for July 17th. If a trader were to enter on this bar on this exact date, high frequency trading algorithms (HFTs) proceeded to take out stops about 2 weeks later (pink arrow).
The prior significant low and turning point (blue arrow) was slightly surpassed by the seek and destroy HFT algorithms as they are aware this is where many traders place their stops (just below prior significant swing low (blue arrow).
Had the trader using the EquiPredict system entered the trade on 7/17 and checked back in on their position 3 weeks later, they would have noticed the model is working as it should and leading the price to its next significant peak and potential profit taking/selling date on 8/28 (green arrows).
As with any important risk management plan, stops should still be strictly minded; but in a general bull market situation, when it comes to higher quality time-tested stocks, stops should be placed farther from the market to avoid getting stopped out by HFTs while working with an EquiPredict rally point forecast and projection as in the above chart.