In the previous two posts I talked about average movements after 1, 3, 5, and 10 days after extreme strong and weak days separately. Here is a chart comparing the result from the posts.
In the chart, red bars red bars represents average movement after extreme weak days and green bars represent what happen after strong days.
From the chart, it is very clear that market tends to consolidate immediately after extreme strength, attempts follow through, reverse after follow through, and eventually value being accepted.
However, market tends to bounce back immediately after extreme weakness and slowly giving back the retracement after the immediate bounce.
From the historical data, the best time to enter long position is after an extreme weak day. As the chance of immediate bounce on the day after is nearly 60%. How does this information help me? Seeing weakness following an extreme day, I imagine that knowing the historical tendency would help me placing a trade against the immediate trend to secure good location and ride out the bounce.
Relevant posts:
<What Happens To SPY After Extreme Weak Day>
<What Happens To SPY After Extreme Strong Day>
