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Trading strategy: Turnaround Tuesday
This strategy, used by fund manager Andre Stagge, stands out due to its simplicity: if the DAX index is bearish, buy it on Monday evening and keep the position 36 hours. To determine if the DAX is bearish a 34-day moving average is used. If on Monday afternoon the price is below the 34-day moving average, a position is opened Monday evening. If the price is above the 34-day moving average no position is opened. The strategy does not use a profit target or a stop loss.
|: The DAX market index
|: Futures and CFD
|: Maximum one trade per week
|Using NanoTrader Full
|: Manual or (semi-)automated
The strategy in detail
The strategy is simple and needs no further explanation. The question is why does this strategy work?
Tuesday is the perfect day for a positive change in market sentiment. In bearish markets investment firms close positions to take profits on Friday. They also close positions to have money available for potential client withdrawals received over the weekend. Retail investors get cold feet and sell positions after the weekend on Monday. Investment firms try to exploit market drops by re-opening positions on Tuesdays.
Some extreme examples of successes obtained by the Tuesday Turnaround strategy exist. In particular after a market crash, Tuesdays have been the days when market sentiment turned positive again.
On Monday 19 October 1987 the Dow Jones market index dropped -23% (508 points). On Tuesday 20 October 1987 the Dow continued to drop until a bottom was found and the market started to climb. By Friday the market had made a good comeback. In spite of the panic, Tuesday was the best buying opportunity.
A similar situation occurred on Tuesday 28 October 1997. On Monday 27 October the Dow lost more than -7%. The slide continued on Tuesday. A low of 6.936 was reached when the market finally started to climb, closing at 7.498 at the end of the day. Once more, Tuesday was the best day to buy.
In August 2015 the Tuesday Turnaround strategy had another remarkable success. On Monday 24 August the DAX came under pressure resulting in a sell off. The lowest level the market reached was 9.338 points before closing at 9.648. On Tuesday the market continued its rebound. The investor who sold on Tuesday at the close, made 480 points in less than 24 hours.
When to open a position?
If on Monday afternoon the DAX is below its 34-day moving average, a long position is bought at the market price some time Monday evening.
When to close a position?
The position is closed at the market price some time Wednesday morning.
The strong points of the Tuesday Turnaround strategy are:
- Easy to understand, easy to implement.
- Limited psychological pressure as the trader feels he is buying low.
- Stable performance since the 2008 financial crisis.
- High liquidity, particularly in the DAX futures.
- Limited number of trades.
- Strong outperformance even when the DAX is bullish.
- The performance in 2007 was weak.
- No stop loss. On solution, put in an emergency stop loss.*
- Entry and exit time not defined.**
- The strategy can be combined with other strategies (Month End and Halloween Effect).
- The strategy also appears reliable for other stock indices!
* In the strategy an emergency
stop of 200 points has been added. Users can change the
distance of the stop.
** For automated trading the open and close times have both been set to Monday evening 17h45 and Wednesday morning 09h20 in the strategy. Users can change these hours.
As usual these can easily be done in the DesignerDialog or directly in the chart.
Using the NanoTrader Full follow these steps:
- Select the financial instrument you wish to trade and open
- Select the template study "WHS Turnaround Tuesday" in the "WHS Strategies" folder.
- If necessary, adapt the settings as described above.
- If you want to trade semi-automatically, activate
TradeGuard+AutoOrder in the chart. If you want to trade
automatically, activate AutoOrder in the chart.