We all hear that we can learn from history and that history repeats itself.
As traders it's hard to disagree, after all, we are in the business of prediction.
Yet it's hard to figure out the timing and tactics of trading.
But clues are available. By looking at historical turn dates and momentum change dates in a given stock or sector- it can provide clues to the future.
It should be noted that the more history a chart has –it tends to produce more consistent forecasting.
One way to analyze historical patterns is to:
Print out a calendar for the upcoming month,
Then look at that same month going back 1 year, 2 years, 5 years, 7 years, and 10 years in the past.
We then look for a confluence of turns that form a pattern, which might give us higher confidence in taking a position in the stock.
Below is 3M (MMM) as an example.
Notice how this established security trades in a consistent similar manner in the month of March, despite the year. (Some traders use Fibonacci sequence back in time for clues 1, 2, 3, 5, 8, 13, 21 years etc.).
Take note that over these particular years MMM tended to find a tradeable high between the 19th and 22nd calendar day of the month of March then a corrective move for a short period, and then a month-end rally. Will history repeat itself? Let's keep track and find out.
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