The Turn Of The Month Trading Strategy works during a small window between the end of the month and beginning of the next month and is a powerful trading strategy.
According to Eddy Elfenbein, most of the S&P 500 capital return has come during a seven day window at the turn of the month. Specifically, the last four trading days of the prior month and first three days of the next month.
This anomaly has also been documented by Ariel, Fosback, Merrill and others. Ziemba also finds that the anomaly is present in international markets, particularly Japan.
In the book The Handbook of Equity Anomalies, the authors agree with Ziemba and show that the anomaly still exists albeit with some anticipation.
There are a number of rational explanations for this stock market anomaly.
The most popular is that since most salaries are paid towards the end of the month, investors typically put their money into the market during this time and this causes stock prices to rise and make this Trading Strategy more powerful.
Other explanations include portfolio window dressing and re-balancing on day -1, pension fund investment moves and brokerage firms that implement sales pushes towards the end of month (in order to meet sales targets).
The following chart from the Financial Analysts Journal clearly shows how stock returns have clustered around the end of the previous month and beginning of the next month:
Turn Of The Month Trading Strategy
You can lock-in gains from the turn-of-the-month effect by going long stock indices three to four days before the end of the month and exiting longs seven to eight days later.
Now, combine the Turn Of the Month Trading Strategy with the Day Of The Week Trading Strategy using the Evergreen Strategy and the Pro’s 5-Minute Trade Secret and you immediately recognize that you have an efficient and extremely profitable trading system that can explode your portfolios growth.