A Trading Idea?
The always-entertaining Daily Options Report provided some commentary on a trading rule. Take a look at the analysis by James Altucher (and the suggestion in the comments by Muckdog) and then we’ll add a thought.
Link: STOP TRADING!.
So NOW you tell me. Jim Altucher adds more info to the "buy the 1st trading day of the month" rule.
It is always possible, and extremely dangerous, to look for ways to refine trading theories. What if, for example, we considered only cases where the first day of the month fell on a Wednesday? My guess is that there is pretty fair variation among the first days depending on the day of the week. What about what month it is? First month of the quarter? These are all interesting possibilities to check. You could also check out what happens on first days when the Manhattan temperature is more than 20 degrees from the historic daily average.
But you see the point, I’m sure. While the gap up versus gap down idea seems to make sense in retrospect, there is no honest way to test it. I am confident that Altucher is well aware of this, as much of his writing makes clear. It takes constant checking to avoid backfitting. The first step is having a hypothesis and a causal model, something that few seem to bother about these days.