Follow Through Day Definition: The Ultimate Guide
What is Follow Through Day?
Follow Through Day (FTD) is a trading strategy employed by technical analysts to capture trend continuation or reversal following a significant price move.
How Follow Through Day Works
FTD occurs the day after a breakout above resistance or below support.
On an uptrend, FTD occurs when the stock price closes above the previous day's high.
On a downtrend, FTD occurs when the stock price closes below the previous day's low.
FTD Trading Signals
Bullish FTD Signal
- Stock price breaks above resistance.
- Follows with a close above the previous day's high.
- High volume during the breakout and FTD.
Bearish FTD Signal
- Stock price breaks below support.
- Follows with a close below the previous day's low.
- High volume during the breakdown and FTD.
FTD Trading Strategy
To trade FTD, follow these steps:
- Identify a stock that has made a significant price move.
- Wait for the next day's trading session.
- If the stock price moves in the direction of the breakout and closes above/below the previous day's high/low, enter a trade.
- Set a stop-loss order below the breakout level (for long trades) or above the breakout level (for short trades).
- Take profit when the stock price reaches a target level or reverses trend.
FTD Success Factors
- Strong price action with high volume.
- A clear break of support or resistance.
- A follow-through close above/below the previous day's high/low.
- Confirmation from other technical indicators.
Limitations of FTD
- FTD is not a standalone trading strategy.
- It can be susceptible to false signals.
- It requires a thorough understanding of technical analysis.
Conclusion
Follow Through Day is a powerful trading strategy that can help traders capture trend continuation or reversal.
By understanding how FTD works and following a disciplined trading strategy, traders can improve their chances of success in the financial markets.
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