The Best Stock Market Timing Systems

The stock market timing systems can come in all shapes and sizes and vary from timing entries and exits intraday to timing very long term trend following system entries and exits.

Certainly, for short term day trading systems a great place to start is some form of time of day filter. The highest volumes occur at the start and end of the session whilst the middle of the session can be often quite quiet and flat. Many timing models, therefore, look to trade only during these early and late sections of the session. 

The most common methods will enter some time in the 1st couple of hours of the session and try and hold into the close. These tend to yield the biggest intraday profits because they wind up holding the trades for more or less the entire session. Some of the highest probability systems that I have seen tend to trade late in the session. This is based on the fact that a market that has, for instance, been rising for most of the session is likely to continue moving in that direction into the close. 

Therefore traders will look for such a situation and then enter maybe 60 minutes before the close to try and catch that continuation of the prior trend. Several systems that I have personally traded over the years look at just the last few minutes of the session to try and catch a few pips on the final moves into the close. There is no doubt that this technique can be highly effective and may often yield very long streaks of winners in a row.

The longer-term trading timing systems often using some form of the day of the week, day of the month or months of the year technique which is also very effective. For instance, there tends to be a positive bias towards the end of the month and into the beginning of the following month. This was first identified by Norman Foss back in his book “stock market logic“. 

Whilst the precise favorable days of the month tend to move around a little it is true that they have generally straddled the month-end for decades. So timing systems, whether for trading futures or stock purchases, that have a bias for entering long a little before the close of the month generally will gain a small edge from this tendency.

For futures traders using a day of the week, the filter can also be highly effective. Mondays and Fridays typically have more volatility than the days in the middle of the week. It is pretty well always the case that by using a day of the week filter we can substantially improve system performance. 

The question we have to ask ourselves is there a valid reason for instance for only trading on Monday or are we just optimising or data mining on the historical data. 

Over the years I’ve realised that this is a very difficult question to easily answer because even if we have data mined the results they can still hold up into the future for additional reasons that we are unaware of. So just because we cannot personally identify a reason why we should for instance trade a particular system only on a Monday that does not mean there is no valid reason.

It simply means that we are unaware of it. It is therefore up to each trader to decide for themselves just how valid and robust each stock market timing system is before they commence trading.

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