Last Updated on 21 September, 2023 by Samuelsson

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:

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:

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:

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

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