In a recent article, we embarked on a deep dive into trading data, revealing the intriguing disparity in trading returns across different weekdays. Today's follow-up takes us one step further into this labyrinth of time-based patterns. Our lens of inquiry? The moving averages of prices on specific weekdays. As we shall see, this lens provides stunning insights that can enhance our navigation of the ever-turbulent trading landscape.
Our prior analysis sifted through trading results from the past 180 days on the Nasdaq 100 (NQ). We discerned marked variations in performance across weekdays. Notably, Thursdays and Fridays delivered impressive positive returns, whereas Tuesdays and Wednesdays presented a steeper uphill battle for traders resulting in a lot of sideways and whipsaw moves.
Building on this, we turned to Python to create moving averages of closing prices for each trading day of the week. Watching these average price lines shift over time unearths an array of compelling insights.
The Last 200 Days: A Tale of Two Halves
The Nasdaq has been on a tear since late 2022, soaring by over 30%. During this phase, most weekdays reaped positive returns, with Thursdays and Fridays taking the lion's share. Contrarily, Tuesdays proved to be a thorn in traders' sides, generally yielding negative returns (below you can see the average prices lines for Thursdays, Fridays and Tuesdays during the last 200 days).
Thursdays, Average Price Line, Last 200 days
Fridays, Average Price Line, Last 200 days
Tuesdays, Average Price Line, Last 200 days
The Bulls of 2021: Mondays in the Limelight
Our analysis journey takes us back to the ebullient bull market of 2021. Here, Mondays stole the show, consistently brandishing an upward-moving average price line. This trend suggested that initiating trades on Mondays offered the highest returns during this bullish phase. On the other end of the spectrum, Fridays delivered lackluster results (compare this to the last 200 days where Fridays has been the best weekday to trade).
2021: Mondays Average Price Line
The Bears of 2022: Friday Takes Center Stage
Shifting gears to the bear market of 2022, a stark contrast comes to light. Fridays, which previously underperformed in 2021, now took center stage. From the dawn of 2022 till late September, Fridays offered the most lucrative opportunities for short-selling, often registering the best 'negative' returns during this bearish epoch.
2022: Fridays Average Price Line
Peering into the Future: The Prophetic Powers of Average Price Lines
These findings reinforce the influential role of the day-of-the-week effect in day trading. Not only do they emphasize the necessity for constant reassessment and evolution in our trading strategies, they also highlight the fundamental importance of temporal factors working in tandem with traditional market indicators. Furthermore, these patterns may serve as potent barometers of market sentiment, hinting at potential shifts in market direction well before they fully materialize.
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