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Wednesday, August 12, 2009

Secret That Improves Your Stock Trading Accuracy Without A Stock Screener

By Lance Jepsen

What I'm about to show you has nothing to do with a stock screener. This one little secret can totally improve your trading accuracy in any market.

A retired institutional investor told me this secret years ago. The amazing thing is that this simple secret still works today. My accuracy now hovers around 80% thanks to this secret. I use it every week and I'm going to show you how you can use it every week as well.

I'm sure you have heard the cliche "two minds are better than one". I have redefined that term: "6 Institutional Brains Can Crete What 89,697,618 Unprofessional Minds Can't"

There are over 80 million Americans who trade in the stock market and yet very few of them, if any, have figured out this secret I'm about to share with you. Are they dumb? No way. It's just that they don't have the same level of access to the market that institutional traders have.

Weekend Effect: Trading Activity is Lower On Friday and Monday and Returns Are Negative On Monday

Miller did a study in 1988 that proved that returns are usually negative on Monday. Miller's research seems to suggest that the reason behind this is individual investor trading. In a second study, Lakonishok and Maberly (1990) and Abraham and Ikenberry (1994) used what is known as odd-lot trading as a measurement for individual investor trading patterns and found evidence consistent with the Miller hypothesis.

Volume is less on Friday's because institutional traders are not buying as evidenced by the absence of large-size trading activity. In fact, institutional traders will close out their trades on Thursday or the very latest on Friday because they do not like to hold open positions over the weekend.

Trading activity is significantly lower on Monday for large-size trades. Moreover, small-size trades have a higher percentage of sell orders on Monday morning compared to other days of the week. If small-size trades reflect individual investor activity and large-size trades reflect institutional investors then both types of investors play a role in the negative return on Monday. The individual traders directly contribute through their trading and institutional traders indirectly contribute through their withdrawal of liquidity on the proceeding Thursday or Friday. Institutions indirectly contribute by their absence on Friday and Monday, which reduces liquidity.

Your odds of making money on your trades are better on Tuesday through Thursday. You will discover your trading accuracy greatly improves when you go long a stock on Tuesday and sell on Thursday.

Because markets have a tendency to dip on early Monday trading, don't get stopped out of your trade too quickly based on Monday trading activity. Monday's have the highest occurrence of head fakes to the downside. - 23211

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