Finding market inefficiencies on Friday-Monday

Training: Swing trading on reversals

The debate over the efficacy or market inefficiencies are not silent and probably will never be silent. The adherents of the efficient market theory believe that markets are absolutely efficient, i.e. it is impossible to make a decision to buy or sell an instrument using the available information about them, which would allow making a profit. Millions of traders all over the world try to disprove this statement, and some of them are quite good at it.

In fact, these successful traders are busy looking for inefficiencies, which is the kind of situations when the market allows you to make a decision on a transaction with a high probability of profit.

Searching for market inefficiencieswhich most practicing traders are engaged in, as a rule, is reduced to identification of any frequently occurring price formations together with signals indicators and oscillators that indicate a high probability of an upcoming market movement in a certain direction.

The Friday-Monday phenomenon

The best traders also take into account the time factor, so I would like to draw the attention of readers to Friday-Monday phenomenon. A lot of markets these days often have reversals and local extremes. This is true of virtually all markets.

Let's look at the first example. Before us is a four-hour chart of the British pound in the summer and fall of 2006.

Fig. 1. GBPUSD. Four-hour chart. Fall 2006.

The vertical lines are week dividers. Red triangles indicate local extrema made on Friday or Monday. On this chart, which covers a period of four months, there are 26 local extrema, 16 of them made on Friday-Monday. I purposely took a range trading period so that there are more extrema.

Example two. Let's take a period that includes a trend movement. As you can see, it's the same picture: in trend on Friday and Monday there are often pullbacks and local minima are created, which are convenient for entering the market according to the trend. Figure 2 shows 22 local extrema, 13 of them were made in the period Friday-Monday. The period of more than half a year is covered. Out of 48 extrema - 29 of them are at the junction of weeks. This is 60% cases. This is already positive statistics, on the basis of which you can develop a trading system or take it into account in an existing trading method.

Fig. 2. GBPUSD. Four-hour chart. Winter 2006.

As I've written before, this phenomenon is evident in virtually all markets. Here is a chart of the S&P500 index futures in 2007. Comments, it seems to me, are superfluous. It's worth noting that the high (in the form of a double top, before the July stock market crash) was also made on Friday-Monday: one of the tops was on Friday, the other on Monday.

Figure 3. S&P500. Four-hour chart. Summer 2007.

But here. futures on New York crude: really like to make highs on Fridays, at most Mondays.

Figure 4. Oil. Four-hour chart. Winter 2007.