First of The Month Market Study

[jswanson 10]

With the new month of August 1st just behind us I was wondering how does the first trading day of each month historically perform? What I want to look for are potential market edges in the S&P futures market, and SPY ETF.

 

I created a simple EasyLanguage strategy to explore the first-of-the-month phenomena. Using a 5-minute bar chart I created a strategy called “First Of The Month”. It simply goes long at the market open (835 Central actually since the order is placed at market open and executed on the next bar) and closes the trade at the market close (1500 Central). The system has no stops and no slippage or commissions were deducted. The test was conducted from the year 2000 until June 1, 2012. Below is an equity graph of the results.

 

 

It did get off to a very choppy start and the last 20 trades or so are in a strong drawdown. However, we can see that buying on the first of the month and selling at the close appears to have an edge. Remember this is not a trading system, but a study to see if we can find a potential edge to exploit. So far this looks interesting, but let’s take this further.

 

I then used the EasyLanguage strategy to test each month independently. I was curious to see which month(s) might hold the best edge. By optimizing the “test month” input parameter over the values 1-12 we get the following graph:

 

 

Reading from left to right we have each bar representing a calendar month. January on the far left and December on the right. We can see the months of February, March, April and May are strong. Also the two months of July and October are positive performing months. December and June show a lot of weakness. Shorting on the first of those months may prove profitable, but that’s for another day.

 

Anyway, maybe someone on this list may find this study helpful.

 

The EasyLanguage code for this market study can found here.

[jswanson 10]

I like these kind of studies,but of course as far as trading goes.....the devil is in the detail. ( i know,you know that right?)

 

Yes, the devil is always in the details.

[ASCAR 10]

I find these type of studies very interesting but you also have to remember there is an overall bias in the markets . This study is too short. It needs tio be run over 40 years.

I:confused: knew an institution that backtested a system ovet 10 years readjusting their prtfolios every month. it was so good they rushed to implement it. Guess what , Whooshka wipeoutt!!!

They had too big a bet on one sector that was very volatile and their system looked at too long a time frame. So when the shakout came they got creamed. The quant kept his job and got promoted.

 

Good work though, the monthly brakup needs more work.Look at the traders QAlmanac, they usually have studies like this on monthly returns