This post was written in a chat room back in 2006. The answer provided by someone touting themselves as fxtraderguru (don’t even get us started) was…
There are several important things about Fridays:
This is such terrible advice, we really don’t even know where to start.
But the idea of trading on a Friday has been put to us dozens of times over the years in many different ways. We’ve been asked why a good portion of our trades land on a Friday. We’ve been asked if it’s a good idea to hold over the weekend. And we’ve been asked if it’s ok to just skip Friday entries (spoiler alert: “no!”)
We’ve written about the subject of Time and it’s relationship to patterns and trading a number of times. Two of our previous posts can be found here and here. However, we have yet to address why so many of our trades land on a Friday.
In short, mathematical patterns are based on time rather than price.
Visualize this: Any market that currently sits at an all-time high means that market is trading a price that has only ever occurred once in history. As such, it is impossible to have a repeating pattern based on a price that has only one instance in history. The same can be said for markets touching new lows or those that have moved so far away from the extremes, those extremes will never be seen again. Repetition, by definition, requires multiple instances. So no market moves in patterns based on price. Price is merely the result.
Rather, all markets move in waves based on time. They move up for 6 days, down for 7, up for 5, etc. How long a pattern takes to develop is infinitely more important than the development itself.
The US markets are open 5 days a week. The futures open at 6 PM EST on Sunday and close at 5 PM EST on Friday… leaving a 49 hour gap in data. From our program’s perspective, that gap needs to be filled by something. It is simply impossible to have a black hole of data while Time continues to march on (i.e. one data set continues while another flattens). And because that gap needs to be filled, often our programs fill the gap with a trade (or one pattern coming to an end while another begins).
From a mathematical perspective, this makes perfect sense. Fractals are infinitely repeating structures without gaps or blackholes or disjointed data by any other description. But markets have gaps in Time and from a trading perspective, this leads to a problem whereby a program may say one needs to trade at a time that isn’t possible (i.e. 1 PM EST on Saturday).
From a trading perspective, this means an adjustment needed to be made. That adjustment we have always made has been to move all weekend, holiday or overnight (out of session) pattern changes to the last available day and time when trading is possible. Most often this has been Friday. Quite simply, if our programs say we need to switch a position on Saturday or Sunday, we simply trade it on Friday at the same time of day. By default, this means Friday consumes roughly 3/7ths of all trades we have ever placed (42.857%).
This brings up the subject of whether that’s a good idea or not. As highlighted above, often traders are afraid of getting “chopped” or “carry costs” or “holding over a weekend”. And we would agree with all of those things if the results reflected such a hypothesis. They don’t.
There are 5 trading days in a week. Ignoring the fact that some holidays remove many of the trading days on Monday or Friday, this means roughly 20% of our results should occur on each day. As it turns out, Friday has accounted for more than 40% of our net profit over the last 15 years (41.003% to be exact).
Finally, anticipating “bad things may happen on the weekend” comes from fear. Fear comes from the unknown and the unknown comes from taking too much risk. So in short, “don’t trade on Friday” is said by people who are taking far too much risk. They are afraid of what will happen while not looking at the screen.
But in reality, they shouldn’t be looking at the screen in the first place and their risk should be reduced significantly.
Friday trading is just like any other day of the week. There is no statistical data to suggest it’s more choppy, more risky or “not a good day to trade.” Let’s stop trying to cancel Fridays and just embrace it for what it is… roughly 40% of our trades and roughly 40% of our results.
So if you want to trade with more confidence even on fridays fill out the form on our website and we will get in touch with you soon.