TraderFeed has an interesting nugget (hat tip to MarketBeat) about buying Friday afternoon at the close.
Brett Steenbarger finds that since 2000, simply buying Dow stocks every Friday and selling on Thursday would be more profitable than owning the Dow industrials outright. "If traders had simply bought at the close on Friday and sold at Thursday's close, instead of losing over 750 points, they would have gained nearly 3000 points."
Brett finds a lot of anomalies like this all the time, it is fascinating stuff.
Unfortunately I don't know what to do with this. There are many statistical oddities that seem to have a causal relationship and some that have a casual relationship to success. The one pointed out by Brett may continue to work for the next ten years for all I know but there is not really a way to apply a forward looking analysis to the idea.
I could paper trade it for a year and it might work and then put real money into the idea next July on the day it stops working.
Looking this sort of thing, as opposed to this specific bit of research, can help better understand how markets work even if they don't directly lead to a trade that makes money.
I am unlikely to trade on this type of indicator, I have no way to justify it to myself but there is absolutely value in exploring the concept.
Wikinvest Wire
5 comments:
I'll wait for the ETF ;)
OG
Can't this be explained by the fact that short-term traders hate holding over the weekend?
yes, that was Brett's conclusion
did he buy/sell at the open or close?
I read an article a few years back (I think I found it from a link at Scottrade) that said an excellent strategy is to buy on Friday's close of a holiday (3-day) weekend and sell on Tuesday's opening. Something about institutional traders don't like to keep positions over the longer weekend should some untoward event occur that would upset markets. Friday's sell activity dips the price while Tuesday's re- purchases result in an uptick.
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