First Of The Month Market Edge

About the Author Jeff Swanson

Jeff is the founder of System Trader Success - a website and mission to empowering the retail trader with the proper knowledge and tools to become a profitable trader the world of quantitative/automated trading.

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  • R.S. says:

    Hey Jeff, Great presentation. Would be interesting to look at holding for the entire month and the impact of the election year cycle. Thanks, R.S.

  • George says:

    Hi Jeff,

    Nice work. I agree with your stop loss analysis, I did this study in EL and tried different profit targets. closing at end of day is best, better than any profit target. However, I have great reservations against avoiding certain months for trading this strategy – unless there is some economic rationale behind leaving them. June and December are the most losing months and both represent end of half years. Also, over the last 7 months of the year (from June-Dec) which are generally negative, July and October are the most profitable months and they represent beginning of third and fourth quarters. Do you think end of half years being losing months and beginning of quarters (Jul and Oct) being positive months – have any significance? Do you think there is any economic rationale behind it? I am very curious to hear your opinion. Like 401ks etc. going into market on 1st of month – which lead to this beginning of month edge. Because otherwise this might be just curve-fitting since we have so little amount of data (like 12 Julys, and 12 Octs etc.). Thank you very much for this fine work.

    • Glad you liked the study, George. I agree about the idea of avoiding certain months unless there is some other fundamental rationale behind it. I have some vague ideas on what might be happening, but I really can’t say. There are books/article dedicated to cycles, but I have not followed them very closely. However, the first thing that pops into my head is mutual funds and/or hedge fund activity around the half-year and end-of-year selling holdings to lock in profits. They all want to show growth in their reports and selling at the end of important fiscal calendar dates may have an impact. Thus, the end of quarters generally may have more selling pressure. The dumping of stocks in december may be partly due to tax strategies as well. Both people and companies using losses to offset gains and then repurchasing the following month. Just a thought.

      • George says:

        Hi Jeff,

        Thanks for your observation. I thought about this for whole day yesterday and looked at many resources. CXO has research on out-performance of beginning of quarter effects. I think that pretty well explains positive returns for July and October. However, Dec and Jun being so negative – I am still not sure why. I was ‘possibly’ wrong when I said possible reason could be related to Dec and June being end of half years. The dates on which we are measuring are 1st Dec and 1st June, so end of half year selling from hedgies is not really relevant, because on 1st Dec and 1st Jun, we still have 1 full month to go before half year ends.

        But in any case, I am going to implement this strategy for my live trading. I plan to use MA35 filter and trade 10 months a year. I will not trade on 1st June and 1st Dec (just because they are most highly negative). I will use full margin from Jan to May and for July and Oct and half margin for the Aug, Sep and Nov. Once again, thanks for this article. Looking forward to more great articles from you in future. Cheers.

  • Kora says:

    Hi Jeff ,

    you might want to see your blog quoted , in the acknowledgements section of this book

    http://www.amazon.com/Anatomy-SPY-First-Trading-Month/dp/1493659537

    Rgds
    Kora

  • Bijan Motaghy says:

    Loved your video. You’ve opened my eyes as to how to go about testing different ideas. Thank you Jeff.

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