Tuesday, January 3, 2012

The January effect

A large gap and a move up on the first trading day of the year is generally considered a good omen and a predictor of a bull move for the next few months. When the market closes near its low, the strength of this assumption is weakened.

On many years, this is an expected gap open and some traders will take a long position on the last trading day of the prior year and exit on the open for a very good profit. This is still gambling however, since a gap down can wipe you out.

Trading based on a large overnight move is speculation and should be done with caution. A small position may be taken using call options, but a larger position required a spread, butterfly or other limited risk option strategy.

Earnings, interest rate changes, government announcements, etc can also be traded this way.

Correction: The original chart showed a buy above b6 on the fL2. The actual buy was at around the same price but above the first bar of the 3m chart as shown below.


  1. Do you look at anything else to aid your trading? Another time frame for exits, order flow etc.


  2. How did you get 4 points buying above 6? I assume you don't take limit orders. Thanks!

  3. I'd like to see more charts which you actually took , let alone seeing it in real time..Theory is a nice thing but practice is what pays our bills.. Please show more charts with your and not only hypothetical entries..
    Other than that very good blog, cheers:)

  4. Omar, I occasionally look at 30m for overnight summary and 3m chart during the first few bars, but thats usually unnecessary and on many days I dont look at anything other than the 5m chart. My exits are usually based on fixed points except a last runner that I try to hold until I see a reversal or trend termination.

    spike, the buy is above b6 after the L2 below it failed.

    bigtime, I sometimes post my entries and exits in real time on irc.othernet.org #brookspriceaction

  5. Sorry where is it you post your entries real time?