How can traders use streaks?

You might have often come across news headlines about market streaks.

• Sensex, Nifty snap 3-day losing streak, rebound amid global rally
• Benchmarks snap 5-day streak, Nifty settles below 24,750, VIX climbs above 14
• Nifty snaps 5-day winning streak, Bank Nifty continues to underperform

What is a Streak? It is an uninterrupted set of up or down moves. If Nifty 50 closes up for two days or more, it is a streak. The same is true on the downside, too. Streaks are interesting and mostly rare.

Of the 6248 trading sessions since 1999, only 14.4% of the Nifty did an up move for three consecutive days. And only 11.7% times it did three consecutive days of down move.

However, can you base your trades on streaks?

Should you buy after a positive streak, expecting the market to continue higher?

Or should you buy after a negative streak, expecting the market to reverse?

Perhaps not!

Buying after a positive streak might work if you ignore transaction costs and taxes. After the trading costs and taxes, there is barely any profitability left. However, expecting a reversal after a losing streak doesn’t seem promising.

What if you sell after a long positive or negative streak? Historical evidence isn’t encouraging about that, either.

While streaks are rare and hence get reported on, they are not very useful for a trader.

Read the Technical Analysis module on Zerodha Varsity to do informed trading.