It is said that traders make millions trading the S&P 500 SPDR ETF around major U.S. holidays. I am going to expose their not very known secret then let you make a decision if it is genuine.
This concept has zilch to do with fundamental or technical analysis.
It is focused only on probabilities.
I will be honest with you, I’m not at ease with trading probabilities. The chap who is, identified only to me as Frank, has shutdown his website.
Frank thinks that stock traders who buy at the end of trading on the first day of the year, then sell at the end of trading on the following day make millions.
He calls this the New Year’s Day Trade.
So I looked at SPY and here’s the move in 2010: 0.2%
Could you repeat that? You would have to be trading with tens of thousands of dollars to get happy about a 0.2% move. And if you had that much money would you actually be betting it away like this on a dicey probability trading tactic?
Frank thinks that one more U.S. holiday that traders make millions on is Washington’s Birthday. He says short at the close of trading right before Washington’s Birthday, then close the short at the end of trading on the subsequent trading day.
Thus I looked at SPY and here’s what would have happened in 2010: 1.8% gain.
I beg your pardon? ? the S&P 500 rose 1.8% which suggests had you gone short the S&P 500, you would have lost 1.8% in the move.
In a jiffy it starts to make a little more sense that Frank’s probability trading website is closed down. Provided this was such a excellent method of trading, then why did the chap close down his blog? Could it be that his probabilities stock trading strategy is bogus?
General seasonal patterns are one thing, but this probability trading is another monster entirely. Seasonality works because there are fundamental things going on at particular times of the year: money manager repositioning at end of quarter, tax selling, elections, summer vacation, etc.
I am not in awe of the idea of buying something just because it’s a certain day of the year. I favor technical analysis and stock charting to establish the trend, then trading with the trend.
In this video I let you see more insane stock trading myths.