Becoming a proficient trader involves recognizing when it’s best to trade, making it crucial to identify the art of knowing when to take the front seat. Consequently, determining the most favorable days to trade stocks is just as crucial as any other aspect. So, what are the best days to trade stocks?
The best days to trade stocks are Tuesdays, the first days of a month, the last days of a month, and the end of the year (4th quarter).
We must establish specific trading rules to conduct a backtest analysis of the best days to trade stocks. In this article, we perform three separate backtests: the first examines weekdays, the second the best days of the month, and the third backtest evaluates the trading performance throughout the year by looking at calendar days.
In the backtests, we use S&P 500 as a proxy for the stock market. We use the cash index and backtest from 1960 until today.
What are the best days to trade stocks? Weekdays
We start by looking at weekdays. Specifically, we look at the performance from the close of one trading day to the close of the next.
The performance for weekdays looks like this:
Historically Wednesdays and Fridays have been the best over the last 60 years.
If we look at the recent performance, from 1995, it looks slightly different:
Tuesdays are the best day to trade stocks! Because of the strong performance on Tuesdays, we developed a strategy called Turnaround Tuesday trading strategy. The linked article offers several specific trading rules for free.
What is not shown in the backtests is that all the gains have come from the close to the next open, and thus there’s no money to be made by being invested from the open to the close (intraday/day trading). We have covered this phenomenon in a separate article:
What are the best days to trade stocks? Trading days of the month
In the table below, we have backtested the performance of each calendar day of the month from 1960:
|Calendar day||Average profit %|
Clearly, we can see that the best days to trade stocks are clustered around the first and last days of the month. We have developed this seasonality into a potential trading strategy:
Do the best days to trade stocks change depending on the backtest period? Let’s look at the data from 1995:
|Calendar day||Average profit %|
The results differ, but the “turn of the month” seasonality is still strong.
What are the best days to trade stocks? Calendar days of the year
Let’s look at the performance of each day separated by months, i.e. each specific day of the year. The table below shows the performance of all calendar days back to 1960:
The colors indicate the performance of the day. Because of the long-term upward bias in stocks, most days are green. That’s why you want to save for retirement as early as possible!
The colors indicate that September is a poor month, and the last three months of the year are good for trading stocks.
What are the best days to trade stocks? Conclusion
The best days to trade stocks have recently been Tuesdays and Wednesdays. If we look at the days of the month, the best days to trade have been at the beginning and the end of the month. If we zoom out, the best days to trade stocks are at the end of the year.
However, the results vary, so this article’s information is, at best, just guidance. Please make sure you backtest your ideas before you risk your own money!