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Day of Week, Date, or Day in Month?

Some market analysts contend that date or day of week are not nearly as important as the position of the day during the month. For example, it might be more reliable to compare the opening versus closing price behavior on the first Monday of each month than to compare the opening versus closing price behavior on each April 7 in our data history. And this could very well prove to be a more valid approach. More research should be done in this area inasmuch as it is still one that has been minimally investigated and could, therefore, yield very profitable results.

The Monday Pattern

Yale Hirsch has amassed a vast amount of data to support his contention that Mondays are usually up days in the U.S. Dow Jones Industrial Average. Hence, his book Don't Sell Stocks on Monday admonishes traders not to be sellers on Mondays. My work supports this contention. My studies also show that since 1982, the start of futures trading in S&P, the closing price of S&P has been greater than (i.e., larger than) the opening price almost 50 percent of the time on Mondays (see Figure 5-7). One note of caution, however, is in order before I give you some suggestions for using the Monday tendency in S&P in futures 500.

There is no pattern, relationship, or indicator in the market that will always be correct. The best we can do is to approach a high degree of accuracy as a limit. All

indicators and patterns will have their losing times. When this happens, the disciplined trader will take his or her loss and exit the trade. There is no other way to do things if you want to be successful in the long run.

Now, getting back to the Monday pattern. One way to take advantage of this pattern in S&P 500 or Dow futures is to filter your system for buy signals only. In other words, assuming this pattern is correct, your best bet would be to follow buy signals only on Mondays, since the day has an upside bias. Consider this filter as an adjunct to the systems I have presented in this book and in my book The Compleat Day Trader.

Yet another way to take advantage of the Monday pattern is to buy on the close Friday and exit on the close Monday. This would not, of course, be a day trade strategy, since it requires holding the position overnight. However, it is very likely that buying on the opening on Mondays and exiting on the close on Mondays would have the same effect.

Are There Other Day-of-Week Patterns?

Based on my extensive work with a lengthy data history in all active U.S. futures markets, I find that there are indeed day-of-week patterns but not in the traditional sense. By "traditional sense" I mean in the "simplistic sense." Figure 5-7 shows the open/close relationships for selected markets based on day of week. This is a variation on the theme of the data presented in Figure 5-6, which shows open/close relationships on a calendar date basis. As you can see, the basic open versus close relationship in markets other than S&P futures is often little better (and at times worse) than a 50/50 event. However, with a small but significant change, the day of the week becomes important.