The Statistically Best Days Of The Month To Trade
Jay Kaeppel | Jun 08, 2016 11:22AM ET
Defining “Trading Days of the Month” or TDM
A “trading day” is simply a day when the U.S. stock market is open for business. Most months have between 19 and 22 “trading days”. For counting purposes I refer to the first trading day of the month as TDM 1, the next as TDM 2 and so on.
As you will see, it can also be useful to count backwards. In other words, the last trading days of the month is referred to as TDM -1, the second to last day as TDM -2 and so on.
Days of the Month to Avoid
Based on a test using the Dow Jones Industrial Average starting on 12/31/1933 the trading days best avoided are:
- TDM 5 and 6
- TDM 13, 14, 15 and 16
- TDM -7, -6, -5
*Note that there is often overlap between TDMs 13 through 16 and TDMs -5, -6 and -7. In other words for a given month TDM 16 and TDM -6 may be the same day. This simply counts as one day to be avoided.
Results
Now I will grant you that exiting and re-entering the market twice a month seems like a lot of bother. Still, the results are worth considering. Figure 1 displays the growth of $1,000 invested in the Dow Jones Industrials Average only on the TDMs listed above (i.e., #’s 5, 6, 13, 14, 15, 16, -7, -6,-5) since 12/31/1933.
Figure 1 – Growth of $1,000 invested in Dow Jones Industrials Average ONLY on TDM #’s 5, 6, 13, 14, 15, 16, -7, -6,-5); since 12/31/1933
Anyone notice a trend? For the record, since 1933 the original $1,000 declined in value -91% to just $87. Before you start yelling “curve-fitting” please note in Figure 1 that the downward trend has been very persistent for many decades. In fact 87% of all 10-year rolling returns have showed a loss.
So what does one gain by skipping these “unfavorable” days of the month?
Figure 2 displays the growth of $1,000 using buy-and-hold (red line) versus holding the Dow only during all of the “other” (i.e., NOT unfavorable) trading days of the month (blue line).
Figure 2 – Growth of $1,000 invested Dow Jones Industrials on all TDM EXCEPT #’s 5, 6, 13, 14, 15, 16, -7, -6,-5 (blue line) versus buy-and-hold (red line); since 12/31/1933
For the record, since 12/31/1933:
- $1,000 invested during all “unfavorable” days declined to $87 (-91%)
- $1,000 invested using buy-and-hold grew to $179,562 (+17,856%)
- $1,000 invested during all “unfavorable” days declined to $2,062,769 (+206,177%)
Get The News You Want
The difference between +206,177% and -91% is what we “quantitative analyst types” refer to as “statistically significant.”
In my book “Seasonal Stock Market Trends” I devote an entire section to “Trading Days of the Month.” This article borrows from and updates some of the information in that section.
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