Thursday, August 16, 2007

Wednesday Effect

The model was signalling to go long tomorrow. However, today is Wednesday which tends to be an up day in the markets. I was just searching for the link where I read about that statistically significant effect but I can't find it. Anyway in the last few years the market tends to go up on Wednesday. So I added a rule, that if the model is short on a Wednesday and Thursday is predicted to be long then I should go long on Wednesday. It improves the results. Just going long on Wednesday willy nilly, however, reduces returns. The reason for this is that on about half of all Wednesdays the model will be long anyway and that is a substantial part of the Wednesday effect. On the other half of Wednesday when the underlying model is short it is sometimes right and sometimes wrong. The times it tends to be wrong is when the signal is turning to the long side at the end of Wednesday anyway.

PS 4:25PM

The Wednesday effect obviously didn't work today though early in the day it looked like it was and I went long and made a profit. Then I went short, ditto. Then I went long near the close and the market kept falling. Then my internet connection went haywire :( I was stuck in the losing position and couldn't get out of it. When things were back to normal I was down more than 10 NQ points. There was a post-close bounce of sorts... deciding what to do now.

No comments: