Yes, Virginia, the Markets are Mean-Reverting

santa virginiaHere’s a stupid system. In fact, I call it the “Stupid 10 Days” system.

You look at the last ten days of trading. If the market at the closing bell is up from the market close of 10 days ago, you buy at the next open. You hold for 10 days, then sell at the next open. A classic momentum play. Wash, rinse, repeat. And remember, you have that uncle who owns a brokerage, so you don’t have to pay commissions. Start with $1000, invest as much as you can each time, and compound that puppy. Here’s what that system would get you with SPY since its inception:

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Sh** Happens (on Tuesday and Thursday Nights)

piles-of-poo

This all started over the weekend, when I started wondering about a trade I had going. The trade hadn’t hit my profit target on Friday and so carried over through the weekend. I started wondering about day-of-week ‘seasonality’ and thought I’d bust out the old charts and see what’s up.

Let’s take a look at SPY from 2000 through the current date. If we buy on a given weekday at the open and sell at the close, what’s the tendency? Is one day of the week better than the others? Here are the averages for each day of the week, open-to-close:

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Low Volatility vs. High Volatility Days

dude-what-would-happen

I read a blog post recently that began “suppose you have a trading system that works well on low-volatility days…” and I thought, hmm. Is that a thing? Is there an edge to low-volatility days vs high volatility days? Let’s turn this blog post into a speculator’s version of Dude, What Would Happen?

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Get Shorty (again, research, not the movie…)

I’m running a high risk of running out of movies with “short” in the title. So this had better be the last blog post on the subject!

In my previous post (here), I looked at a short-sale signal where a stock was shorted after it averaged 3% gains each day over five days (in any distribution). At the end of five days, it had to be up 15%. Yes, I could have just looked at it that way, but whatever, it all works out the same.

The graphs looked pretty good. Seemed like the basis for a system, yeah?

Not so fast.

Continue reading Get Shorty (again, research, not the movie…)