Calendar Based Trading

A well known mechnical trading of stock markets based on the calendar effects.

Trading US Equity by switching back and forth between US market (represented by US S&P 500 SPY) and cash  for only two periods: a). month-end (buy SPY) and month-begin (sell SPY) b). before US Exchange holidays There are always three rules to implement the calendar trading. The first two rules outline the two types of seasonality that the system hopes to exploit, while the third deals with exceptions:

       1. To exploit positive seasonality around the turns of each month: Buy at the close of the third-to-last trading of each month, and sell at the close of the fifth trading session of the following month.

       2. To exploit positive pre-holiday seasonality: Buy at the close of the third-to-last trading day prior to exchange holidays, and sell at the close of the last trading day before a holiday.

       3. Exceptions: If the holiday falls on a Thursday, sell at Friday’s close rather than Wednesday’s. Also, if the last day before a holiday is the first trading day of the week, don’t sell until the day after the holiday. Finally, never sell on the first trading day after options expire; instead wait an extra day.

Since Norman Fosback was the first one who proposed the above rules, the system is sometimes called Fosback Seasonality Trading System. Mark Hulbert, author of Hulbert Financial Digest, has a detailed discussion and has been tracking this strategies for the past 15 years. the following is an excerpt from Hulbert's November 3, 2005 barrons.com online column titled "Trading the Calendar Can Pay Off Big".

Consider a hypothetical portfolio constructed by the Hulbert Financial Digest to be invested in the Dow Jones Wilshire 5000 Index whenever Fosback’s original system gave a buy signal and in 90-day Treasury bills at all other times. Over the 20 years through October 31, this hypothetical portfolio produced a 13.4% annualized total return in contrast to the DJ/Wilshire’s 12.0% (see table).

 

Dow Jones

Fosback’s

Month/

Wilshire 5000

Seasonality

Year

Index

Trading System

9/85

$100,000

$100,000

9/86

$130,382

$105,828

9/87

$180,182

$142,731

9/88

$159,819

$178,326

9/89

$209,987

$217,226

9/90

$182,252

$251,952

9/91

$244,655

$307,977

9/92

$270,130

$329,158

9/93

$316,734

$337,763

9/94

$324,789

$352,030

9/95

$419,315

$395,341

9/96

$498,655

$457,293

9/97

$688,288

$566,440

9/98

$710,922

$621,442

9/99

$902,424

$723,875

9/00

$1,060,776

$917,528

9/01

$753,361

$918,975

9/02

$621,358

$893,449

9/03

$776,306

$973,796

9/04

$900,251

$1,076,833

9/05

$1,033,489

$1,256,830

 

Source: The Hulbert Financial Digest

Model Portfolios

It should be noted that Fosback later on explored that the calendar effect has a much better effect on small cap stocks such as Russell 2000 (^RUT or ETF IWM). The model portfolio using ^RUT as the underlying indeed performs better than the other ones.

See Also


Register for FREE No Credit Card Required
Or Start FREE 30-day trial now >>

Members enjoy Free features

  • Customize and follow a diversified strategic allocation portfolio for your 401k, IRA and brokerage investments within minutes
  • Receive monthly or quarterly re-balance emails
  • Enter funds and percentages in your portfolio, see its historical performance and receive ongoing rebalance emails
  • Real time fund ranking and selection for your plans
  • Quality retirement investing newsletter emails
  • Fund ranking and selection for your plans

Tens of thousands of users have signed up!

Join Now (Free)
No Credit Card Required

User names can only consist of alphabetic and
numeric characters.(eg: 0-9a-zA-Z)
I agree to the Terms of use

Login With Facebook:

Get Started Now. It's Free!

Get portfolio suggestions for your
401k plan or brokerage accounts

Powered by MyPlanIQ
You have created an account on MyPlanIQ.com by using this email "", please login MyPlanIQ account or reset your password.