V.9:6 (239-241): The End-Of-The-Month Effect by Ben Warwick

V.9:6 (239-241): The End-Of-The-Month Effect by Ben Warwick
Item# \V09\C06\ENDOFTH.PDF
Availability: In Stock

Product Description

The End-Of-The-Month Effect by Ben Warwick

Back-testing has radically changed the way traders view the markets. Although no one has yet found the Holy Grail of trading, the ultimate goal remains the same: to create a system that consistently yields profits with a reasonable amount of risk. Alternatively, a portfolio of trades can be developed using technical, fundamental and seasonal factors. One such strategy is the end-of-month (EOM) trade.

Studying the EOM effect, mentioned by Martin Zweig as well as others, suggests that the majority of the stock market's gains are generated during specific periods at the end of one month and the beginning of the next. This phenomenon appears to be caused by the tendency of corporate equity holders to group their purchases at month's end. Considering the size of the mutual fund industry (about $500 billion), it seems reasonable to expect such an anomaly to occur.

I tested four different holding periods from June 1988 to February 1991 to determine the one with the best risk/reward parameters:


I Buy 3 days before end of month, sell 1st day of next month

II Buy 3 days before end of month, sell 2nd day of next month

III Buy 2 days before end of month, sell 1st day of next month

IVBuy 2 days before end of month, sell 2nd day of next month

As Figures 1 through 4 show, the third holding period yields the best results in both performance categories, average winner/average loser and average winner/average winning drawdown. The maximum drawdown for holding periods I and II of 1,143 points ($5,715 in the Standard & Poor's 500), however, is quite large. It makes sense to use a stop-loss technique to manage one's risk.

*Note: $2.95-$5.95 Articles are in PDF format only. No hard copy of the article(s) will be delivered. During checkout, click the "Download Now" button to immediately receive your article(s) purchase. STOCKS & COMMODITIES magazine is delivered via mail. After paying for your subscription at store.traders.com users can view the S&C Digital Edition in the subscriber's section on Traders.com.

Take Control of Your Trading.
Professional Traders' Starter Kit
All these items shown below only $299.99!
  • 5-year subscription to Technical Analysis of STOCKS & COMMODITIES, The Traders' magazine. (Shipping outside the US is extra. Washington state addresses require sales tax based on your locale.)
  • 5 year access to S&C Archive
  • 5 year access to S&C Digital Edition
  • 5-year subscription to Traders.com Advantage.
  • 5-year subscription to Working Money.
  • Free book selection.
  • Click Here to Order