A Bad Case of the Fridays: A Look at Daily Market Returns
Day trading – is there an optimal way to do it? At a high level the data suggests you’re better off avoiding intraday exposure and instead trading overnight (or shorting intraday, if your risk profile can tolerate it). But what about specific days of the week? If you were to only trade on, say, Tuesdays, how would you do compared to only Fridays or Mondays? Is there a material difference or are all weekdays essentially the same?
Let’s find out!
Contents
Summary
Opening positions Monday at or around the closing bell and closing them first thing Tuesday morning yielded the greatest total return, followed by opening a position Monday at the opening bell and closing Tuesday at the opening bell.
Opening positions first thing Friday morning and closing at or around the closing bell yielded the lowest total return.
Methodology
Strategy Details
- Symbol: SPY
- Strategy: Day Trade (positions held for 24 hours or less, ignoring weekends)
- Days Till Expiration: N/A
- Start Date: 1993-01-29
- End Date: 2020-01-03
- Positions opened per trade: 1
- Entry Days: daily
- Entry Signal: N/A
- Timing 9:00am ET and/or 4:00pm ET
- Strategies
- Overnight (open position at market close and close at market open)
- Intraday (open position at market open and close at market close)
- Buy/Hold (open position at market open and close the following market open)
- Trade Entry
- Mondays
- Tuesdays
- Wednesdays
- Thursdays
- Fridays
- Trade Exit
- Mondays
- Tuesdays
- Wednesdays
- Thursdays
- Fridays
Assumptions
- Margin requirements are always satisfied
- Margin calls never occur
- Margin requirement for all positions is 30%
Mechanics
- Prices are in USD
- Prices are nominal (not adjusted for inflation)
- Commission to open or close positions is 0.00 USD
- Slippage is calculated according to the slippage table
- For comprehensive details, visit the methodology page
Results
Win Rate
Trading overnight outperformed with regard to win rate vs intraday or buy/hold.
Wednesday scored highest and Thursday scored lowest.
Average Win
Trading intraday outperformed with regard to average win magnitude vs overnight or buy/hold.
Tuesday scored highest and Wednesday and Friday tied for lowest.
Best Win
Buy and hold outperformed with regard to best win vs overnight or intraday.
Monday scored highest and Thursday and Friday tied for lowest.
Lose Rate
Trading overnight outperformed with regard to lose rate vs intraday or buy/hold.
Wednesday scored highest and Thursday and Friday tied for lowest.
Average Loss
Trading overnight outperformed with regard to lose rate vs intraday or buy/hold.
Tuesday scored highest and Monday scored lowest.
Worst Loss
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Compound Annual Growth Rate
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Annual Volatility
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Sharpe Ratio
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Total P/L
Trading overnight outperformed with regard to total return vs intraday or buy/hold.
Tuesday scored highest and Friday scored lowest.
Overall
Profitability of various days had mixed results.
Tuesday scored highest and Friday scored lowest.
Discussion
Walking into this study I expected overnight weekend performance (long trades opened at Fridays close and closed on “Monday”) to have the worst return profile. It turns out such a strategy yields the third greatest risk-adjusted and total return across all strategies. Perhaps the “weekend risk” is overblown, or even a false narrative.
These results assume a long strategy is implemented. Short strategies have their place and appear to shine on Fridays.
Additional Resources
Private, Custom Backtests
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Consultations
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February 14, 2020 @ 8:54 am
Great study, Spintwig! When I trade my 2 trading day to expiration strategy, I have noticed that premiums are significantly higher for contracts over the weekend. My database shows that there is an edge for trades opened on Thursday close and allowed to expire on Monday. Sounds like you and I are thinking along the same lines these days!
Nice to see that our results are indicating the same thing also. Have a great weekend!
February 16, 2020 @ 6:17 pm
Thanks Jeff! It sounds like the uncertainty of the weekend translates into a higher IV for late-in-the week options. Great to hear our independent research is agreeing!
February 14, 2020 @ 5:03 pm
This is the way
February 16, 2020 @ 6:24 pm
I don’t have a Disney+ subscription yet 🙂
February 14, 2020 @ 7:16 pm
Noice. So buy Monday at the close and sell Friday at the open to avoid the worst intradays, and you could buy at close on Friday and sell at close on Monday as well.
This is really interesting! Thanks!
February 16, 2020 @ 6:23 pm
That could work!
You’re welcome. Thanks for raising the question / idea last week.
January 1, 2022 @ 2:52 pm
What I’m thinking here is use 1x of your portfolio to just buy and hold the market indefinitely to avoid cap gains, but use a little bit of margin, or perhaps sell SPX puts monday close and sell friday open, as JEI said. and then perhaps Friday close, and then Monday open as well. and then on top of that, sell a small sized SPX call intraday monday / friday intraday.
January 3, 2022 @ 12:22 am
Sounds like a viable strategy. Keep us posted if you implement it.