A good short-term trader preys on volatility. However, volatility can also backfire. What day of the month is stocks’ most volatile?
The most volatile day of the month is the first. There are a few other volatile trading days as well.
We make two backtests on the S&P 500 by using the oldest ETF still trading: SPY.
There are two ways to look at the day of the month: calendar day or trading day. In this article, we use the trading day as we believe this is the correct measure because it usually deviates from the calendar day.
Let’s determine what is the most volatile trading day in stocks during the month:
What Day Of The Month Is Stocks’ Most Volatile? The opening gap
Our first backtest of the day looks at the opening gap in relation to the previous close. The bigger the opening gap, the bigger the volatility.
The table below shows each different trading day and its movement from the close the day before until that day’s opening:
The first column shows the trading day and the third column shows the average gain/loss.
Thus, the first trading day of the month is the most volatile, and the 12th is the second most volatile.
What Day Of The Month Is Stocks’ Most Volatile? Close to close
Let’s look at what happens when we exit on the close rather than the open:
Again, the first trading day of the month is the most volatile, while the 23rd is the second (however, that day doesn’t trade that often). Other volatile trading days are numbers 11 and 12.
Amibroker code for the most volatile trading day of the month
We have the Amibroker code for the above backtest available for a small fee. By subscribing, you get access to all the Amibroker code (and in plain English for backtesting in Python) for our best trading strategies (free strategies):