Studies - Posted on Wednesday, December 30, 2009, 5:32 PM GMT +1

3 Comments


Dec Wednesday 30

The Good, the Bad and the Ugly (Sessions of the Year)

Due to the fact that tomorrow (Thursday) will be the last session of the year, and (as promised) in order to prepare for the next posting about developing a ‘market model‘ (financial trading strategy) dealing with those ‘Seasonalities‘, I thought you (my readers) might be interested in what – from a historical and statistical perspective – were (better : ‘are’) the most (un-)favorable sessions (as the consecutive number of the respective business day) of the year.

Table I below shows the SPX‘s (S&P 500) top 100 sessions (since 01/01/1940) for going long on the close, and the respective Cumulative Returns, Profit Factor and Win/Loss Ratio if one would’ve sold on close of the then following session, ordered by [1] Cumulative Returns,  [2] Profit Factor, [3] Win/Loss Ratio. (Example: The most favorable session – with respect to Cumulative Returns – for buying on the close and selling on close of the then following session would’ve been the first business day of the year).

Table II below shows the SPX‘s (S&P 500) most unfavorable 100 sessions (since 01/01/1940) for going long on the close, and the respective Cumulative Returns, Profit Factor and Win/Loss Ratio if one would’ve sold on close of the then following session, ordered by [1] Cumulative Returns,  [2] Profit Factor, [3] Win/Loss Ratio. (Example: The most unfavorable session for buying on the close and selling on close of the then following session would’ve been the 201st business day of the year).

Interestingly 8 out of the top 13 most favorable, and 5 out of the bottom 13 most unfavorable sessions for going long on the close can be found in the last quarter of the year (consecutive number of the respective business day greater than 200), not surprisingly a major part during the month of October (increased volatility).

Table III shows the SPX‘s (S&P 500) performance (since 01/01/1940) going long on the close two business days before the New Year exchange holiday (Setup 1, would be triggered today), going long on close of the business day immediately preceding the New Year exchange holiday (Setup 2), and going long on close of the business day immediately following the New Year exchange holiday (Setup 3, the first session of the new year and historically the most favorable session of the year for going long on the close).

It seems that on the first business day(s) of the year, a lot of people seem to be eager to put year end bonuses, christmas presents and and and into the markets, reflected by a winning percentage in excess of 70%, a profit factor greater than 3, two maximum consecutive losses (out of 68 occurrences) and a tiny drawdown of 3.83%.

In either case one of those ‘Seasonalities‘, where historical occurrences and respective probabilities and odds advise to be positioned on the long side of the market instead of going against all odds, although (and unfortunately) past performance is never a guarantee for future performance.

I wish you a Happy New Year.

Best,

Frank

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Disclaimer: No position in the securities mentioned in this post at time of writing.

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

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Comments (3)

 

  1. scorptraduh says:

    Frank,

    Very interesting stuff, thanks for all your hard work! Have a very safe, prosperous New Year!!

  2. Phil says:

    Frank,

    What tools do you use to analyze your setups and produce these statistics? Thanks for your great blog!

    • Phil,

      thanks a lot for your kind words.

      I use Matlab (from Mathworks). I did the programming on my own (there is nothing pre-configured as with TradeStation or MetaStock), but Matlab itself provides a lot of functionality especially designed for financial markets, and there are a lot of sources on the web where one can find useful sources.

      Best,
      Frank

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