The weekday effect in trading can be a handy trading edge because trading is about exploiting small trading edges in the market. If you work hard and diversify with different markets, time frames, strategies, and market directions, you can develop a decent portfolio of strategies that hopefully give you a smooth equity curve. Can the day of the week help you in diversifying and finding trading edges?
The weekday effect makes a difference in trading – the weekday effect is a great tool to create edges in the market. Depending on the market and asset class, you can develop trading strategies that use daily seasonalities in the stock market. The weekday effect doesn’t work on its own but needs to have additional parameters. For example, the Tuesday turnaround is one of the strategies that works pretty well in the US equity markets.
Today we look at the different weekday effects in the S&P 500, the DAX 40, OMX 30, the Nifty50, and the Hang Seng index. At the end of the article, we link to two old articles that contain strategies that either directly or indirectly use the day of the week.
How we test the weekday effect in the stock market:
The tests in this article are done like this:
- We buy at the close on weekdays 1-5. 1 is Monday and 5 is Friday.
- We exit at the close the next day.
Thus, the performance in the graphs below means that day 1 is the performance of Tuesday because we enter at the close of a Monday and exit at the close of Tuesday. Please keep this in mind when you read the article.
The tests are done from the year 2000 until September 2021.
The weekday effect in the S&P 500
Let’s start with the most important index in the world: the S&P 500. The table below shows total profits for each day of the week:
Weekday 1 (from Monday to Tuesday) is best and has an average of 0.12%. Thus, Tuesdays are the best day of the week. This is the reason for the success of Turnaround Tuesday.
However, we can clearly see the win ratio is pretty similar despite different returns.
Which day of the week is best to buy stock?
Based on the table above, the best day of the week to buy a stock is Monday. If you buy at the close on Monday and hold until the close Tuesday (the next day), you gain 0.12%.
The weekday effect in the DAX 40
The DAX is one of the most traded stock markets, and the DAX future is a popular trading vehicle. We trade the DAX futures ourselves, and we plan to send out one or several Trading Edges in the future based on this contract:
The table below shows how the different weekdays have performed in the DAX-30:
Weekday one is best and the worst day is from Wednesday’s close to Thursday’s close.
The weekday effect in the NIFTY 50
The Nifty 50 index is the benchmark of the 50 largest Indian companies on the National Stock Exchange. India has thousands of listed companies, and trading and investing are growing in popularity.
The performance per day is like this:
Unlike the S&P and the Dax, Nifty 50 is positive for all days of the week and Wednesday is the best day.
The weekday effect in the OMX 30
OMX 30 is the leading Swedish index and consists of the 30 most traded stocks on Stockholm Stock Exchange. Companies like Investor AB, Volvo, Sandvik, Ericsson, Assa Abloy, Electrolux, and Atlas Copco need no introduction for those interested in both trading or long-term investing.
Historically, Sweden has been a great place to grow your wealth, with even better returns than the S&P 500 over the last 50 years, according to the book Triumpf Of The Optimists.
Sweden also has a significant number of traders and OMX 30 is a very active trading tool.
Anyway, the day of week effect shows pretty similar patterns as in the S&P 500:
Tuesday is the best day and Thursday is by far the worst day.
The weekday effect in the Hang Seng
Hang Seng is one of the most popular trading vehicles in Asia. It has 50 components that reflect the great majority of the market capitalization.
We traded the Hang Seng for a period but stopped a few years ago due to the time difference. We managed to trade a few strategies that worked reasonably well.
However, the day of the week effect is like this:
Again, the gain from Monday to Tuesday shows the best result.
Amibroker and Tradestation code for the weekday effect:
Amibroker is a very powerful tool despite its cheap price. It works both for backtesting and live trading, especially with Interactive Brokers. How you can learn to code, do backtests, and live trading is described in our Amibroker course.
- Seasonal trading strategies
- Even Vs. odd days trading strategy (S&P 500)
- Last trading day of the month trading strategy
- The options expiration week effect
- Trading the week after options expiration day
- Trading the holiday effect in stock markets
- The turn of the month trading strategy (end of month effect)
How to use the weekday effect in stocks:
The reader might ask: This is interesting, but how can I use the weekday effect in practice?
As an example of how to use it in real life, we link to two strategies that we have already published and that filter for the day of the week effect:
We have also used a daily seasonality in one of our monthly trading edges for long-term US Treasury bonds.
What is the weekday effect in trading, and how can it be used as a trading edge?
Answer: The weekday effect is a phenomenon in trading where specific days of the week exhibit seasonalities that traders can exploit for creating trading edges. By diversifying across different markets, time frames, and strategies, traders can develop a portfolio of strategies leveraging the weekday effect.
How does the weekday effect vary across different markets and asset classes?
Answer: The weekday effect varies across markets such as the S&P 500, DAX 40, OMX 30, Nifty 50, and Hang Seng. Each market may show unique patterns in terms of daily seasonality, providing opportunities for traders to develop strategies based on these variations.
Which day of the week shows the most favorable returns in the S&P 500, and how can this information be utilized in trading?
Answer: In the S&P 500, Tuesday (weekday 1) demonstrates the highest average return. This insight can be used to inform trading decisions, with strategies like Turnaround Tuesday taking advantage of the positive performance on this specific day.