Monday, March 22, 2010

After Down Fridays Over The Past Year...

One place there has been an edge over the last year is in buying Fridays that closed down. Below is a study that illustrates this.

These are some fairly incredible results for just looking to buy a down Friday. Even if you eliminate the 7% winner, which was actually the 1st instance from 3/20/09, results are still very strong. The average trade would be 0.7% instead of 0.9%.

I also looked at how the market has performed over the same time period when Friday has closed up.

It appears the edge has only been on down Fridays.

It is important to understand that this is what I often refer to as an “environmental edge”. In other words, it is something that has worked in the recent past and seems to be a result of the current market environment. It is not an edge that has persisted over a long period of time nor do I expect it to continue to persist for a long period of time from now. That doesn’t mean it isn’t a useful observation, though. In such cases where I believe a setup contains an environmental edge I will look to use it to my advantage until it appears to be losing its effectiveness. Of course I do this with all edges, but environmental edges are on a tighter leash than others.


Mark Wolfinger said...

Good statistics.

But as an older trader, I cannot get Oct 19, 1987 out of my mind.


Hans van der Helm said...

When do you buy and when do you sell on a down Friday?

James Stollenwerck said...

This is a late comment, but, in my view, measuring down Fridays for the last 12 months is arbitrary. Why? Because you are combining both a Bear and a Bull market.

The SPX crossed over it's 200 Day Moving Average in June, so I'll use that as a line of demarcation. The bear segment of your test, then, is from March 2009 to June 2009, and the Bull part is from June 2009 onward.

We're in a Bull market now, so I measured down Fridays from Friday June 5, 2009 and here are the results a/o 4/27/2010:

6 losers out of 19 trades=68% Profitable, and the method makes quite a bit of money.

Then I every Friday from June 5, and here are those results:

12 losers out of 44 trades=72% profitable, and it makes 169% more than the down Friday version, and it's more robust, meaning the seasonality is removed (except for limiting the measurement to a Bull market.)

Then I measured buying Fridays, and selling at the close of Teusday and Wednesday. Each of these make progressively more money, but have a lower percentage success rate, and are subject to larger drawdowns.

In summary, I contend buying every Friday at the close, and selling every Monday at the close is a pretty good way to go until the averages cross back down over the 200 Day Moving Average again, at which time it's probably time to start selling Friday closes, and buying Mondays.