Should We Trade The Scariest Day of the Week?

May 30th, 2018

What’s the scariest thing in trading?

• Some say it’s buying and holding Bitcoin in any direction.
• Others say it’s buying stocks in the fall of 2008.
• Still others say it’s getting involved in a land war in Asia.

For my money, the scariest thing in trading is taking a trade on Friday and holding it over the weekend.

The research, however, tells us that holding a Friday trade over the weekend is a very smart thing to do.

In fact, according to the numbers, we should never be afraid of holding a position overnight or over a weekend.

In a February 2, 2018 article in the NY Times, we learned something fascinating.

The Bespoke Investment Group did a study that looked at the cumulative stock market gains since 1993.

The research showed that, since ’93, the stock market has gained 541%. Nice.

But here’s the amazing part: ALL of those gains since the 90’s came OUTSIDE the regular trading hours.

For example, if you bought in the last few seconds of each trading day since ’93 and held overnight, you would’ve made 571%.

If, however, you bought at the open and closed out at the end of every day, you would’ve LOST 4.4%.

Every single bit of the gain in the stock market has come from holding overnight.

But how about Forex?

Since Forex trades 24 hours a day, there’s only one opportunity to hold a trade overnight, and that is entering a position on Friday and holding until Sunday.

That just sounds scary (and stupid). What does the research say?

Using my oldest daytrading robot, the USDJPY Hornet, I went back to 2003 and tested each day to see which day is most profitable.

Based on a losing trade recently and my dislike of holding day-trades over the weekend, I was sure that Friday would be the worst day.

Here’s what I found.

First, I looked at the entire week. What’s the most profitable combination of days to trade the Hornet?

It turns out the best combination is to trade Tuesday-Friday (no Mondays). Coming in close second is to simply trade every day. Those are almost even.

If we’re talking about individual days, though, here’s how the rankings come out.

The most profitable day by a wide margin is…Friday.

Friday is the most profitable day.

Next on the list was Wednesday. Then Tuesday, Thursday, and finally Monday.

The rankings (by profitability):

1. Friday
2. Wednesday
3. Tuesday
4. Thursday
5. Monday

So here’s what the research is saying.

By not holding a position overnight in the stock market, you’d be trading for 25 years and end up with less than you started.

By not holding a position over the weekend in the Forex market, you’re missing out on the most profitable day.

Over the long term.

That’s the key.

Holding a position overnight and having it gap the wrong way is a horrible feeling. Just going through that one time can make a trader never want to do it again.

There’s no shame in wanting to avoid pain. Who wants sleepless nights?

But if we can take the pain of the losers, research shows that we’ll be better off in the long run by holding on.

I’m not saying it’s easy.

I’m just reporting the news.

Please don’t shoot the messenger.