Saturday, February 04, 2006

Days of the Week: Do They Make a Difference?

Traders often refer to Fridays as bad trading days...Mondays fare almost as poorly in their reputation. But are there real differences in trading patterns from day to day?

I went back to January, 2003 and investigated results for each day of the week. My first finding was that volatility was about the same for the various days. There was no evidence that any particular day of the week had more movement than any other.

Since the beginning of 2003, we have gained almost 400 S&P points. Close to 70% of this total occurred on Monday and Tuesday. Wednesday showed very slightly negative returns, Thursday had the third best performance, and Friday was barely positive. Over 90% of all market gains since 2003 have occurred on Monday, Tuesday, and Thursday.

Here are the specific average daily changes:

Monday: .096% (83 up, 61 down, 155.21 points)
Tuesday: .081% (91 up, 69 down, 118.21 points)
Wednesday: -.003% (86 up, 74 down, -1.87 points)
Thursday: .065% (87 up, 69 down, 95.83 points)
Friday: .024% (83 up, 74 down, 28.93 points)

As you might guess, the best returns came from buying at the end of Wednesday and holding through Monday (.18%) or buying the end of Thursday and holding through Tuesday (.19%). Buying a down Friday and holding through Monday (a strategy that applies to the current market) has been quite a winning trade idea: average one-day price change is .21 (47 up, 24 down).