The Monday effect on the market
Continuing the search for original forecasting and trading methods applied to the market I propose to familiarize myself with a method, about which little is written, but the use of which pleasantly surprises. So, get acquainted - "the Monday effect.".
It is no secret that our life, like the life of the market, is cyclical and subject to certain periods. In this vein, "Monday effect" can be viewed not only from a trivial but also from a scientific point of view.
How to use the Monday effect on ?
The basic hypothesis on which virtually all studies of this phenomenon are based is that, If the market went up on Friday, it is more likely to go up than down on Monday. Friday's market decline is also often accompanied by hopes for a continuation of Monday's decline, at least in the first half of the day.
This hypothesis may be associated with trading on the gapsWhen traders open positions a few minutes before the market closes on Friday, hoping to catch a strong jump on Monday and lock in profits. But there is a completely different principle at work here.
At first glance, this seems like absolute nonsense. Another method based only on statistical historical data. - What about the statement that the market is changing, that every six months we need to change and adjust the parameters of technical indicators, not to mention neural networks?! - you may ask. But, you will not believe what historical basis the research of this effect has.
Who has seriously studied the "Monday effect"?
All of the studies to which market analysis has been subjected often relate to the stock market. To give a few examples: as early as the 1920s, investors noticed, on Mondays, securities rose in value less and fell more than on other days of the week. The first study of the "Monday effect" was conducted in 1931 (M. J. Fields in Journal of Business). However, one of the key studies in this area was conducted in 1980 by Kenneth French, an American economist and Nobel Prize contender. In his paper "Stock Returns and the Weekend Effect" he suggested that the value of shares increases uniformly over timeso after the weekend the quotes should rise more strongly. But French's calculations did not confirm his hypothesis.
In contrast, by calculating how the S&P 500 index changed each day from 1953 to 1977, French found that, on average, stocks fell on Mondays while they rose on the other four days of the week. In 1984, his colleague, the American scientist Richard Rogalski, also showed that on Mondays the market opens down relative to Friday's closing level.
Similar studies were also conducted by researchers from developing countries - Shahid Ali and Muhammad Akbar from the University of Islamabad. Syed Basher and Parry Sadorsky of Canada's York University were engaged in research on emerging markets.
Surprisingly, research to identify similar patterns was also carried out on the Russian stock market. It turned out that Russian equities do not obey global rules. Research has reached the marketplace as well .
Does the "Monday effect" apply to the market ?
With the help of this method we will analyze the movement of the most popular pair EURUSD for a period of almost 11 years, namely from 2002 to the present.
The calculation was based on the hypothesis: after Friday's close, the price continues its movement in the direction of growth or decline relative to the close of the daily candle on Friday. Often, indeed, the first half of Monday the price moves in the same direction, according to the inertia of Friday's movement.
The price has generally had the same patterns for the last 10 years. The basic shapes are shown in the figure below. Very often the price opens with a gap on Monday.
Итак, эксперимент подтверждает гипотезу. Таким образом, при правильной расстановке стоп-лоссов и фиксирования прибыли метод имеет достаточно хороший потенциал. Здесь выделены наиболее часто встречающиеся 6 форм — движение цены с пятницы на понедельник.
Is there a "Tuesday effect"?
Of course, similar patterns can be found for other days of the week. Here too, without reinventing the wheel, but after searching a little information in the network, we find the following: researchers say that returns vary for different days of the week. Let me remind you that this is applicable to the stock market. The lowest yields on instruments are observed on Monday and the highest on Friday. Also, stock market researchers in France, Japan, Australia and Italy say that low yields are seen on Tuesday as well. Different markets show this anomaly on different days. For example, the Monday effect is noticeable in the US, Canada, Italy, Germany, the UK and Brazil. In other countries, such as Japan, France, Belgium and Australia, maximum fall (or minimum market growth) is observed on Tuesday.
How superstitious are traders?
If there are such ways, then we can safely say that traders are superstitious people to one degree or another. Many of us believe in coincidences and various omens. For example, in the dependence of the stock market on the time of year. In addition, hundreds of traders around the world have a set of omens that help them when trading.
How do you explain the "Monday effect"?
Most traders spend the weekend analyzing the market, summarizing the results of the past week and making plans for the next one. Just during this period the mass thinking is based on the principle that the price will continue the movement started on Friday for some time, but here one should not exclude the possibility of change trend from the new week. So often the first half of Monday or the whole day the price is in uncertainty, as the week has just begun. You should make money on this uncertainty.
This method is not seasonal, which already deserves a lot of attention and more in-depth research. Moreover, trading solely on this principle, with such beautiful statistics is also not worth it. Remember that the 70% of success lies in capital management. The article gives a vector for independent research, it is possible that your way will be the most profitable.