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.
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.
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.
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 of the stock market that wasn’t preceded by a FTD. 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.
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 If an index falls below the low of its follow-through day, it is no longer valid.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 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 FTD 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.