Increase Your Trade Accuracy After Learning This Simple Rule
August 13, 2009 by Sam Neilson
Filed under Stock Market
What your about to learn has nothing to do with using a stock screener. If you want to greatly improve your stock trading skills and accuracy, you need to learn this secret.
I was told this secret by a retired institutional trader several years ago. It still works today. It seems to good to be true. Using this secret I have increased my trade accuracy to nearly 80%. Every week I use this secret. I’m going to show you exactly how to duplicate this secret and improve your own trading accuracy.
Have you ever heard the term two minds think better than one? Well… I have actually redefined that term: 5 Professional Institutional Minds Can Produce What 89,697,618 Unprofessional Minds Can’t
There are over 80 million Americans who trade in the stock market and yet very few of them, if any, have figured out this secret I’m about to share with you. Are they dumb? No way. It’s just that they don’t have the same level of access to the market that institutional traders have.
The secret is called the Weekend Effect. The Weekend Effect can be summarized like this: trading action is lower on Friday and Monday and returns are lower on Monday.
Miller did a study in 1988 that proved that returns are usually negative on Monday. Miller’s research seems to suggest that the reason behind this is individual investor trading. In a second study, Lakonishok and Maberly (1990) and Abraham and Ikenberry (1994) used what is known as odd-lot trading as a measurement for individual investor trading patterns and found evidence consistent with the Miller hypothesis.
Trading activity is less on Friday for large-lot trades which is why the volume tends to be lower on this day. So institutional traders will zero out their trades on Thursday or Friday. Institutional traders don’t like going into the weekend news cycle with any open positions.
Monday has lower trading volume than any other day of the week. Small, individual traders have more sell orders on Monday than any other day of the week. If small-size trades show individual investor activity and large-size trades show institutional investors then both types of investors play a key role in Monday being a negative return day. The individual traders contribute through their trading while institutional traders contribute through their withdrawal of liquidity on the proceeding Thursday or Friday. Institutional traders contribute by their absence on Friday and Monday, which reduces liquidity.
You will be most accurate with your trades on Tuesday through Thursday. You will find that your accuracy rate of successful money making trades goes up if you take an entry on Tuesday and exit on Thursday or at the latest Friday.
Now that you know markets have a habit of dipping on early Monday trading, do not sell your stock too early based on Monday morning trading activity. Remember, Monday’s have the greatest number of head fakes to the downside.
