What Is The Follow Through Day?

Trading Strategies

The Follow Through Day Can Identify Market Bottoms

Nick Schmidt

Nick Schmidt is a co-founder of TraderLion and Deepvue with over 10 years of market experience. Since 2017, he has dedicated himself to providing top-quality educational material for investors and traders. Adopting a “less is more” philosophy, he focuses on weekly charts with an emphasis on price and volume.

March 17, 2020

5 min read

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Identifying Market Bottoms Using The Follow Through Day

A Follow Through Day (FTD) is a concept developed by William J. O’Neil to identify an important change in general market direction, from a definite downtrend to a new uptrend.

Follow Through Days occurs during a market correction when a major index closes significantly higher than the previous day, and on greater volume. It happens Day 4 or later of an attempted rally. Leading up to a FTD, an attempted rally takes place during a downtrend when a major index closes with a gain. The rally attempt continues intact as long as the index doesn’t make a new low.

Follow Through Day Characteristics:

Characteristics of a follow-through day include an index closing at least 1.7 – 2% higher on increased volume, positive behavior of leading stocks, and improved market action regarding support vs. resistance levels. The most powerful follow-through days often happen Day 4 through Day 7 of an attempted rally. Day 1 of an attempted rally is the first up day after a new low.

In the wake of a follow-through day, the market should continue to add gains on strong volume, with breakouts by top-tier leading growth stocks. This is further confirmation that a sustainable new uptrend is underway.

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Why The Follow Through Day?

The idea behind waiting for a FTD to occur before starting to establish long positions is to help avoid getting back into the market too early, only to have it roll over and begin to decline again. There has never been a new bull market, or uptrend in the history of the stock market that wasn’t preceded by a follow through day. However, not every FTD leads to a new bull market.

What ultimately determines the sustainability of a new uptrend once a follow-through day occurs, is the health, breadth, and rotational cycle of the market’s leading growth stocks.

Where Can a Follow Through Day Occur?

A FTD can only occur on the NASDAQ or S&P 500. Only one of these major indexes must follow through. If an index falls below the low of its Follow-Through Day, it is no longer valid. In rare instances, a Follow-Through Day can occur on day 3 of a rally attempt if the volume is unquestionably overwhelming and top-tier leaders are breaking out of constructive bases on big volume.

FTD can also happen further out than 7 days, however, between 4-7 days is ideal.

Key Follow Through Day Statistics

Distribution on Days 1 or 2 after a FTD fail 95% of the time
Distribution on Day 3 after a FTD fail 70% of the time.
Distribution on Days 4 or 5 after a FTD fail 30% of the time.

Follow Through Day Summary

In conclusion, a Follow Through Day (FTD) is a valuable tool developed by William J. O’Neil to identify potential shifts in the market from downtrends to new uptrends. It is characterized by a significant increase in closing prices and volume on a major index, ideally between Day 4 and Day 7 of an attempted rally. Alongside FTD, understanding other technical patterns, such as the Double Bottom Pattern, can enhance traders’ ability to recognize potential market reversals. While not every FTD leads to a new bull market, there has never been a new uptrend without one. By keeping an eye on FTDs, as well as the behavior of patterns like double bottoms in leading growth stocks, traders can gain valuable insights to navigate market shifts and make informed decisions about establishing long positions. The FTD concept, supplemented by pattern recognition, helps traders avoid entering the market too early and protects them from potential declines.

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Frequently Asked Questions

A Follow Through Day is a technical analysis concept developed by William J. O’Neil to identify potential shifts in the market from downtrends to new uptrends. It occurs when a major index closes significantly higher on increased volume during a market correction, typically between Day 4 and Day 7 of an attempted rally.

A Follow Through Day signals a change in market direction by showing increased buying activity and higher closing prices on a major index. This suggests that the market sentiment is shifting from bearish to bullish, potentially indicating the beginning of a new uptrend.

A Follow Through Day can occur on the NASDAQ or S&P 500. Only one of these major indexes needs to follow through for the concept to be considered valid.

A Follow Through Day typically occurs between Day 4 and Day 7 of an attempted rally, which starts with the first up day after a new low. However, in rare instances, it can occur on Day 3 if the volume is overwhelmingly high and leading stocks are breaking out on big volume.

The sustainability of a new uptrend following a Follow Through Day depends on the health, breadth, and rotational cycle of the market’s leading growth stocks. Strong gains and breakouts by top-tier growth stocks on high volume provide further confirmation of a sustainable new uptrend.

While Follow Through Days have a strong historical track record of indicating new uptrends, not every Follow Through Day results in a new bull market. Traders should consider additional factors, such as the behavior of leading growth stocks and overall market health, to determine the sustainability of a new uptrend.

If an index falls below the low of its Follow Through Day, the FTD is no longer valid. In this case, traders should reassess their positions and the overall market conditions, as the potential uptrend may not be sustainable. It’s crucial to remain vigilant and responsive to market signals and changes in the behavior of leading growth stocks.