Intraday Bias: Month End Play
By LawrenceMonth end is often depicted as the day that certain players would conduct window dressing to push the stock market higher. I have debunked the myth in the Survival Guide To Trading The Stock Market Month Ends. Now, we are looking into useful biases to trade the month ends.
Going Long All Month Ends Is Sure Way To The Poor House
Following is chart of 5-Minute Emini S&P with net gain (loss) trading 1 contract going long from open to 4 pm on the last trading day of each month since 1995.
The chart above is dramatization of what I said in the Survival Guide – going long month end does not pay.
The chart above also tells us that it is not a good idea to go short every month end because of the sharp spikes happening from time to time making the system unstable.
It is because of these sharp month end rallies that people need to give them a name so that they have an excuse to make when they are clueless next time month end is around, again.
The Month End Bias Trading Setup
Following chart is the net gain chart trading 1 contract with the month end bias.
This bias works very well during both bull and bear periods over the past 15 years. It is something important to know if you plan to trade the month end.
There are several variations of the trading setup. Each has its own advantage over the other ones. I will go over them one by one here.
The Basic Setup
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Have you heard about that paststats guy –Kora Reddy or something–who wrote a pamphlet regarding trading just day one of a month?
He has a book written about that.
The kind of stats he uses are common tech setups which may (or may not) capture the context of the trading day going into.
It is reasonable book focuses a lot on winning rate.
As you know I am more a positive expectancy person myself. =)