Holding Positions Over the Weekend– Here’s What You Should Know

The Stock Trading Conundrum: Trends and Insights Monday through Friday

Most every analytical piece on stock trading revolves around a common core of issues. These include technical and fundamental analysis, trading platforms and brokerages, trading strategies, financial reports, economic data, macroeconomic variables, and the psychology of trading. Yet, it is rare to source information pertaining to generalized trends and best practice methodology vis-a-vis trading activity on specific days of the week. It may seem disingenuous to novice traders, but there are notable differences in trading activity on Monday versus trading activity on Friday.

Are Mondays Good or Bad for Buying & Selling Stocks?

Source: Isabelnet.com S&P 500 ETF (SPY)average daily percentage change by week date: 2019

The financial markets are a hive of activity; Mondays are regarded as the best day of the week to buy stocks. A phenomenon has been attributed to Monday trading, and it is known as the Monday Effect. Many traders are of the opinion that the first working day of the week bodes well for buying stocks. If Fridays closed lower, Mondays typically open in the same fashion. Anecdotally, we know that Mondays are often marked by price declines, owing to the impact of bad news over the weekend. Then there are the Monday Blues which kick in, especially after a weekend of revelry, followed by a day back at the grind. Nonetheless, the negative impact of selloffs on Monday, is minimal when compared to other days of the week.

The Monday Effect, or the Weekend Effect is a real thing with traders. According to this theory, the stock market’s bullish or bearish behavior will continue on a Monday where it ended on the previous Friday. The above chart represents the average daily percent change by weekday, and clearly the declines on Mondays tell a different story. With the S&P 500 contracting on average, on Mondays, the rationale behind buying stocks on Mondays holds water. There are many value propositions available to traders on Mondays, given the frenetic trading activity that kicks off in the early hours every Monday morning.

Large volumes of trades take place, and volatility is at its maximum. In fact, mornings are the best time to buy stocks and sell stocks, given the feeding frenzy that takes place in the markets. This is largely due to the previous day’s news, overnight news, or pre-market activity which has an outsized impact on the current day’s trading activity. Inexperienced traders often make poor decisions in the early morning trading sessions, particularly the first 60 minutes of trading, from 9:30 AM EST to 10:30 AM EST. In terms of volume, volatility, and price movement, that magical hour is best for trading stocks.

Are Fridays Good or Bad for Buying & Selling Stocks?

Friday volatility, much like Monday volatility is an important factor to bear in mind when buying & selling stocks. Over the weekend, an avalanche of economic, financial, and geopolitical factors come into play. Since stock markets are closed over the weekend, a different approach needs to be adopted to buying & selling stocks heading into the weekend. That’s what makes Fridays particularly important in terms of best-practice trading strategies. We already know that volatility feeds off uncertainty, and weekends introduce plenty of variables into the equation. For this reason, there is often tremendous trading activity and price volatility on Fridays.

Timothy Sykes, a penny stocks trading expert, highlights a particular ‘event’ that occurs when a glut of short sellers is forced to buy to cover, creating what is known as a short squeeze, and a price spike in a stock. This phenomenon typically occurs on a Friday. For example, a positive news release on a Friday can cause a stock to spike heading into the weekend. Whenever short sellers anticipate that a stock’s price will decline over time, they can borrow the shares from the broker at a set price, and buy those shares back at a later date for the lower price, pocketing the difference.

Now, a short squeeze occurs when a heavily shorted stock rises in price because short sellers believe that the stock price will in fact increase, and not decrease. So, they close out their short positions and buy to cover. Remember, the markets are closed on Saturdays and Sundays, and the spike will invariably continue on the next Monday. This ties in with the Monday Effect, or the Weekend Effect discussed above!

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