Is there a “right” time to trade stocks?

The last time you bought a stock, did you give any thought to when the best time of day to make your move would be?

Is it better to move at 9am or 11am? Or how about right after lunch? Or just before the closing bell?

How about which day you chose to move on?

Do Tuesdays outperform Fridays? Should you avoid Wednesdays altogether? Do some weeks beat others?  

If you’re a true long-term investor seeking to buy and hold great businesses for a long time, none of this matters to you. In fact, you probably think it sounds crazy.

But if you’re a shorter term trader, stuff like this can make a difference. Potentially a massive one.

It turns out, there are good days and bad days to be in the stockmarket. Being in the market on just the good days (and skipping the bad) can make a massive difference to how much money you make. In fact, you can build an entire strategy around just this one idea.

Eoin Treacy – our resident master trader – has developed a pretty unusual way of doing just that. He calls the good days “golden windows”. The bad days don’t have a name yet. Perhaps “beach days” work – stay out of the markets, don’t stress and go to the beach.

So how does it work?

Well, before I show you the how, let me present the results to you. Eoin did an extensive 17-year backtest between 2000 and 2017. First he isolated the “golden windows” of time – usually between 4 and 5 trading days – when he thought the markets would rise.

Then he tracked how you’d have done if you’d only held the market during those days. 

The results were pretty impressive.

If you’d only held the market – the biggest stockmarket in the world, the Dow Jones Industrial Average – in those “golden windows” then you’d have outperformed the market by 322%.

Not bad. In trading terms (if you’re a spread bettor) that equates to 7,000 points over and above the markets’ performance. And you’d only have been “in” the markets for half of the time.

Not bad.

But it gets even more unusual. See, if you’d held the markets in the “off” periods (the times in between the “golden windows”) you’d have made a loss of 62% over 17 years.

Let me repeat that because it’s important.

Inside the “golden windows” you’d have beaten the market by 322%.

Outside of them you’d have lost 62% of your money. 

That’s remarkable. It turns out there is a rhythm to the stockmarket. There are good days and bad days. What’s more, you can pinpoint what these days are ahead of time.

See, what’s even more surprising is the connection between these “golden windows”. It has nothing to do with technical analysis, earnings announcements, interest rates or any other metric you see regularly covered in the financial press.

In fact, it’s something that – at first glance – doesn’t seem connected to the stockmarket at all. It’s actually very simple. In the US, people get paid every other week. Millions of people make compulsory contributions to their 401(k) account, in the same way people here in Britain make regular pension contributions.

That money goes to large pension funds, who then drop it into the markets. That means, roughly twice a month and at predictable intervals… a big chunk of cash hits the stockmarket. That’s your “golden window”. And that’s why the market tends to rise in those periods.

There’s a lot we can’t know, of course. We can’t know exactly who is getting paid (employment figures change). And we can’t know precisely which stocks funds will buy (though we can guess).

But what we do know is when people will get paid. We can isolate a time period. And we can then cross reference that against stockmarket performance…

Crunch the numbers, as Eoin has, and you find the market seems to go up a LOT more inside those windows than outside. That doesn’t mean every window is a winner. But the data tells us that more often than not, the market rises inside those windows, far more so than any other time.

That is an extremely compelling proposition – because we can turn it into a trading strategy.

  1. Isolate the windows of time workers in the US will be getting paid.
  2. Mark them on a trading calendar for the next year (there’ll be 25 windows per year, because US workers get paid every other week).
  3. Go long the market during those windows.
  4. Close your trade at the end of the window, and stay out until the next one opens.
  5. Repeat 25 times a year.

Pretty simple, no?

Well, the best ideas tend to be simple. There’s an elegance to an idea so straightforward. And that allows you to – if you can be disciplined, stick to the plan and trade with a pot you’re willing to risk – approach your trading in a much more structured way.

No guesswork. No chaos. Just predictability. And order.

They sound like the hallmarks of a sound strategy to me. If you want to learn more about how you can use it yourself, I recommend signing up for a free masterclass with Eoin, which demos the idea. Here’s the link you need to do just that.

As always, send your questions to me at nick@southbankresearch.com.

Until tomorrow,

Nick O’Connor
Publisher, Exponential Investor

Category: Commodities

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