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“Turnaround Tuesday”

Some people we follow in Twitter who have been trading for a long time often talk about “Turnaround Tuesday” if Monday is a down day in the stock market. Below is the analysis that shows if this is a true anomaly or just another false meme.

We backtest the following strategy in SPY from 01/2007 to 10/02/2018:

If the return on Monday is negative and tomorrow is Tuesday we buy at the close and exit at the close of Tuesday. Commission is $0.01/share and equity is fully invested.

Below is the result of the backtest:

Some interesting observations arise from the above chart:

  • Strategy has more than half of the buy and hold performance of SPY in test period
  • Bulk of returns were generated from 01/2007 to 04/2009
  • Risk-adjusted performance is high with MAR at 0.39 versus 0.16 for buy and hold

Below is a table of monthly returns:

The strategy worked well during the financial crisis bear market with a return of almost 29% and probably this is the reason it emerged as a trading rule.

It also worked well in 2011 despite the large correction with 6.8% return.

But what about the possibility of other days of the week being turnaround days? Below is a table that shows CAGR and MAR (CAGR/Max. drawdown) for each day of the week provided that the preceding day had negative return in the same test period as above:

Day of week CAGR MAR
Monday 0.92% 0.06
Tuesday 4.69% 0.37
Wednesday 1.47% 0.06
Thursday 0.15% 0.01
Friday -0.17% -0.01

It may be seen from the above table that the “Turnaround Tuesday” anomaly is significant when compared to the other days of the week.

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Charting and backtesting program: Amibroker


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