How to Forecast Market Direction Up to 3 Days in Advance

Traders often search for ways to predict price direction with confidence without relying on guesswork. Jeff Tompkins, founder of Altos Trading and a hedge fund manager at Altos Capital, introduced a systematic method that aims to forecast potential market reversals up to three days in advance using a proprietary approach he calls the “slingshot strategy.”

 

Market psychology and the cycle of emotion

 

Understanding the emotional patterns that influence market behavior is key. Many traders enter positions with optimism, only to experience fear and panic when trades move against them. This emotional cycle—ranging from euphoria to despair—often leads to poor decision-making, like buying high and selling low.

Jeff emphasized that successful trading requires flipping this narrative. Instead of reacting to fear, traders can adopt a contrarian mindset: become more cautious when the market is euphoric and look for opportunities when fear is high.

 

The slingshot strategy: Identifying momentum reversals

 

At the core of Jeff’s strategy is a specific price behavior he refers to as a “slingshot”—a move where price breaks below a key volatility threshold before snapping back to a previous level. This concept mirrors the physics of a slingshot: the further it’s pulled back, the stronger the potential rebound.

This strategy is powered by a well-known technical tool: Bollinger Bands. By observing the behavior of price action relative to these bands, traders can gauge when an asset is overextended and may be due for a reversal.

 

Recognizing the setup

 

Here’s how Jeff defines a valid slingshot setup:

• Volatility contraction: The outer Bollinger Bands (upper and lower) are narrow and parallel, indicating a low-volatility environment.
• Band breach: Price breaks below the lower Bollinger Band—typically a two standard deviation move from a 20-day moving average.
• Volatility expansion: The upper and lower bands begin to diverge as the market responds to the sharp move.

When these conditions are met, it signals a potential reversal. Traders can enter long positions with the expectation that price may return to the initial level where volatility expanded. This technique can be applied to any asset class and on any time frame.

 

Taking it a step further with predictive signals

 

While the slingshot strategy helps identify potential reversals, the Trade Trend indicator—also developed by Jeff—enhances this setup by forecasting buy and sell signals up to three candles in advance. On a daily chart, that equates to up to three days of advance notice before a move.

The indicator uses a proprietary blend of momentum and volatility analytics to deliver:

• Buy and sell signals near outer Bollinger Bands
• Suggested order types and price levels, including buy stops or sell stops to reduce false entries
• Trailing stop levels to help manage trade exits

Trade Trend can be used as a standalone system or integrated with existing strategies. It works across stocks, ETFs, futures, and forex markets.

 

A historical lens on performance

 

Jeff demonstrated how the slingshot setup and Trade Trend indicator have identified key reversal points in past market events:

• COVID-19 crash (2020): Provided a buy signal near the bottom and a sell signal upon rebound to the volatility expansion level
• Flash crash (2015): Forecasted the drop and subsequent recovery
• Mortgage crisis (2008): Generated early sell signals ahead of the market collapse and buy signals near recovery levels

 

Putting it into practice

 

By applying the slingshot strategy alongside the Trade Trend tool, traders can reduce emotional decision-making and gain a clearer picture of where markets may head next.

Forecasting market direction doesn’t have to involve guesswork. With the right blend of volatility analysis, momentum confirmation, and trade management, traders can build a more confident and disciplined approach to navigating short-term market moves.

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