Seasonal analysis of stocks is the study of statistical patterns related to times of the year. But if you really want to optimize the potential gain and probability of success of a trade, you might also consider what day of the week to enter a trade on.
Mondays are popular days for entering new positions because many traders and investors use the weekend to evaluate new trade possibilities. However, many stocks (and indexes) have better track records for trades entered on other days of the weeks.
The best day of the week to enter new trades can vary from stock to stock, and from week to week. Let's say that over this past weekend you noticed that several building and construction-related company stocks are doing well. Specifically, you narrowed your investigation down to the stock of Comfort Systems USA (symbol FIX). Their website states ‘Comfort Systems USA has become America’s leader in installation and service for building mechanical systems. Over the years, we’ve merged with the best regional experts, and now provide nationwide reach through 36 subsidiary companies that are prepared to build, service or retrofit any mechanical, HVAC or electrical system.'
While the stock recently went through a 29% pullback (like most stocks), it has recently rebounded on strong volume. You see evidence the stock has been under accumulation for much of the past year, and you feel that FIX is likely to continue a rebound. Comfort Systems has good fundamentals, including an earnings growth rate averaging 29%, a strong relative strength rating, and the number of funds holding the stock has risen 40% over the past year. And you notice that one Director of the company has been regularly buying shares of the company, usually in chunks of $100,000 at a time.
You decide you are going to buy shares of FIX this week.
Now, if you are a small investor, it makes little difference when you buy the stock. As long as the overall market is not selling off, and FIX trades on the upside on Monday morning, it would make sense to buy the stock soon after Monday's open.
But now say you short-term trade rather large amounts. A 1% difference in results can add up, so you look for every advantage in a potential trade. In that case, you might want to investigate the best day of the week to enter a new trade in FIX.
For the week of March 7th, historically, if you entered a trade in FIX on Monday morning, 18 sessions later you would have averaged a 3.2% gain:
But what if you waited until Tuesday to enter the trade? At the same target date, now 17 sessions from trade entry, you'll see that FIX has averaged a much higher gain: 5.3% versus 3.2%. Waiting a day to enter the trade each year would have averaged a 2.1% higher average gain.
Now look more closely at the two charts. In every year but one, the gain (or loss) for entering on Tuesday was the same or better than the gain (or loss) for entering on Monday.
Not all stocks show daily trade-entry patterns as pronounced as the track record of FIX. But if you trade large amounts, and want every advantage possible, consider researching the day of week track records yourself or finding a source of this information.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, please click on the following link: www.markettamer.com/seasonal
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Gregg Harris is the Chief Technical Strategist at MarketTamer.com.
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