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Does the Turnaround Tuesday trading strategy work?(Insights)

Last Updated on 10 February, 2024 by Rejaul Karim

The Turnaround Tuesday is one of the most well-known effects in the stock market. But is it a myth or fact? Well, that is what this post is set to find out. It seems buying on weakness on a Monday is a good trading strategy. But before we go into that, let’s find out what Turnaround Tuesday means.

What does Turnaround Tuesday mean?

There are potential trading strategies based on the day of the week effect. For example, we have noticed that the stock market tends to change direction on Tuesdays and move in the opposite direction of the move on Mondays. This is what is referred to as the Turnaround Tuesday.

If the market is down on a Monday, it is quite likely that it will rise on Tuesday and the days after it. On the other hand, if Monday is a strong up day, the days after it may have little movement or a decline.

Turnaround Tuesday Strategy 1

The strategy is as follows:

  1. Today is Monday.
  2. The close must be at least 1% lower than Friday’s close.
  3. Enter at the close if one and two are true.
  4. Exit at the close on Tuesday.

Below is the equity curve of this simple trading strategy:

Does the Turnaround Tuesday trading strategy work?(Insights)

The result is as follows:

  • 163 trades
  • 7% average gain per trade
  • 9% CAGR
  • 63% win ratio
  • The average gain per winner is 1.75%
  • The average loss per losing trade is -1.05%
  • Exposure/time in the market is 2.25%

Turnaround Tuesday Strategy 2

Here are the rules of the strategy:

  1. Today is Monday.
  2. The close must be lower than the open.
  3. The IBS must be below 0.2.
  4. Enter at the close if 1-3 are true.
  5. Sell at Tuesday’s close.

See the compounded equity curve in SPY from 1993 until September 2021:

Does the Turnaround Tuesday trading strategy work?(Insights)

These are the parameters of the result:

  • 247 trades made
  • 41% average gain per trade
  • CAGR is 3.5%
  • The win ratio is 60%
  • The average gain per winner is 1.23%
  • The average loss per losing trade is -0.82%
  • Exposure/time in the market is 3.4%

See the table below for the profits produced by the same strategy on the different weekdays. Note that 1 represents buying at the Monday close, 2 represents Tuesday’s close, and so on:

Does the Turnaround Tuesday trading strategy work?(Insights)

Obviously, the return is substantially higher buying at Monday’s close than any other day. It is twice as good as buying on the Tuesday close, not to mention the other days which are even less profitable.

As you can see, Turnaround Tuesday is by no means a myth. For the last 30 years, buying weakness on Mondays has turned out to be a profitable strategy.

Read more similar articles here on The Robust Trader or on Quantified Strategies

Video about turnaround tuesday.

FAQ

What is Turnaround Tuesday in the stock market, and is it a reliable trading strategy?

Turnaround Tuesday refers to a stock market phenomenon where the market tends to change direction on Tuesdays, moving opposite to the direction on Mondays. It’s considered a real and profitable trading strategy. Buying on weakness on a Monday has historically shown positive results, making it a strategy worth exploring.

How does the Turnaround Tuesday strategy work, and what are its key components?

There are different variations of the Turnaround Tuesday strategy. One approach involves entering a trade on Monday’s close if the market is at least 1% lower than Friday’s close and exiting at Tuesday’s close. Another strategy involves entering a trade on Monday’s close if the close is lower than the open, and the Internal Bar Strength (IBS) is below 0.2, then selling at Tuesday’s close.

What are the historical results of the Turnaround Tuesday strategy?

The historical results of the Turnaround Tuesday strategy vary based on the specific rules applied. For example, one strategy with 163 trades showed a 7% average gain per trade, a 9% Compound Annual Growth Rate (CAGR), and a 63% win ratio. Another strategy with 247 trades showed a 41% average gain per trade, a 3.5% CAGR, and a 60% win ratio.

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