Day of Month Seasonality for January

28Dec12

A topic recently on me noggin has been day-of-month seasonality (read more, more, and more). Using a simple walk-forward test to minimize hindsight bias, I showed that trading the days of the month that have been strong historically has consistently led to much stronger returns in the future. That’s as true today as it was in 1950.

Below is the DOM seasonality calendar for next month, broken out by quartiles (read why), with quartile 1 indicating the strongest days and quartile 4 the weakest.

20121228.05

The map wasn’t useful in December, but has been quite effective since I first shared it, with the S&P 500 returning +0.06 on the best half of days versus -0.15% on the worst half. Quartile 4 days have been particularly bad, with an average return of -0.54%.

As I stressed when I introduced the concept, day-of-month seasonality never justifies a trade all by itself, but I do think it deserves to be one of many tools in the trader’s toolbox.

Happy Trading,
ms

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5 Responses to “Day of Month Seasonality for January”

  1. 1 John French

    Michael, thanks for your continuing efforts with your blog. Always interesting and approachable. Happy New Year!

    John

  2. 2 Donald Johnson

    Thanks for this hard work. As an options trader, I will use it!

  3. Hi Michael,
    Interesting new twist on seasonality that you’ve produced here.
    I was just wondering, do you have any plans to combine this DOM seasonality with the prior seasonality maps that you produced? In other words, are you curious enough about how 1st/last day of month bias, monthly “W”, and pre/post – holiday biases and FOMC announcements affect the DOM seasonality ?

    • 4 MarketSci

      Hello Trader99 – the turn of the month and monthly “W” observations are more or less the same thing as what I’ve presented here, just expressed in a slightly different way. Fed Days are also a strong seasonality bias and I also include them on this calendar.

      I’m less inclined to look at specific holidays (or at least less inclined than I have been in the past) because there are so few observations to consider, so I just treat the day before a scheduled market closing as slightly bullish, regardless of the specific holiday in question.

      michael


  1. 1 What I’m Reading this Weekend | System Trading with Woodshedder

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