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Market Streak Alert

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    A streak is when the price is moving in one direction multiple days in a row. Why should you be interested to know when this happens? Well, if markets are random then tomorrow’s move will be either up or down with equal 50/50 probability split. However, market prices are loosely pinned to some fundamental (intrinsic) price, and movement too far from equilibrium or fair value usually results in a reversion, or a correction (a move in the opposite direction).

    What we all know is that prices rarely go straight to the price that is deemed as fair. It is usually a tug of war, making a market of participants with different opinions, different views on the future. Taking this into account, we should become wary of a market that moves in a single direction without any difference of opinion, because this might mean that the price is getting further and further from the “fair” price, the market is becoming “unhealthy”, and a correction is imminent.

    For an example of how a “healthy” market operates, if new information that was not in the public domain is suddenly made public, then prices will discount the information right away, which might require a severe change in markets prices. Usually this results in sharp price changes and equilibrium is achieved pretty quickly.

    But the opposite can also happen – a rising or falling streak might mean that the fundamental intrinsic price is rising or falling, and a correction is not needed. In this case, a streak is an indication that you should join the market and trade in the same direction. Deciding which case it is is the most challenging part.

    If you don’t already have a strategy set in mind, you need to find a valuable threshold value for an instrument you are interested in, if there is one. PsyQuation provides the Probability Table tool for this. With it, you can try different threshold values and see how rare a streak like that is, and whether there’s a set behavior that the price action follows afterward, in the timeframe you are interested in. 

    You should be looking for trade setups that suggest that the odds of a price movement up or down are better than 50/50. Be wary of making any judgements when the event is too rare – the less past events there are, the less you can rely on past performance to make your trading decisions.

    For example, if you see that S&P is usually up in three months after a 7-day streak, you might want to go long when such a streak happens. In this case, the short-term behavior is all over the place, and there are not many events to make it statistically sound. There will never be a sure signal that will guarantee a payout with no risks, though, so you should use any edge you can get, which we will help you with.

For a detailed tutorial on setting up and using the market alerts, as well as picking the right parameters, check out our tutorial.


Check out the Market Alerts suite on our website.

Unusual Volatility Alert Moving Average Cross Alert