In this article I’m going to try something a little different. All the articles up until today were all written as a traditional article that required you to read through them. That of course, will continue. However, I often find it easier and more helpful to create short videos to explain ideas and concepts. So, in this article there is an associated video to go along with it. The article is much shorter as most of the content is within the video. I think you will find this helpful and I plan on creating more videos in the future to accompany articles. I have a feeling a few people will be unable to view the video so, there will be some bugs to work out. Please let me know if you are unable to view the video. Please leave any feedback, questions or problems in the comments below this article.
With the new month of June we are seeing the Bears awaken as the market takes a hit. This big plunge got me wondering how does the first trading day of each month historically perform? What I want to look for are potential market edges in the S&P futures market. These potential edges could likely be applied to the ETF SPY and to other indexes.
I created a simple EasyLanguage strategy to explore the first-of-the-month phenomena. Using a 5-minute bar chart I created a strategy called “First Of The Month”. It simply goes long at the market open (835 Central actually since the order is placed at market open and executed on the next bar) and closes the trade at the market close (1500 Central). The system has no stops and no slippage or commissions were deducted. The test was conducted from the year 2000 until June 1, 2012. Below is an equity graph of the results.
It did get off to a very choppy start and up until the last 20 trades or so we are in a strong drawdown. However, we can see that buying on the first of the month and selling at the close appears to have an edge. Remember this is not a trading system, but a study to see if we can find a potential edge to exploit. So far this looks interesting, but let’s take this further.
I then used the EasyLanguage strategy to test each month independently. I was curious to see which month(s) might hold the best edge. By optimizing the “test month” input parameter over the values 1-12 we get the following graph:
Reading from left to right we have each bar representing a calendar month. January on the far left and December on the right. We can see the months of February, March, April and May are strong. Also the two months of July and October are positive performing months. December and June show a lot of weakness. Shorting on the first of those months may prove profitable, but that’s for another day.
In the video associated with this post I continue by testing a regime filter and a stop loss value. Watch the video to see all the details. The code for this market study is below.
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.