Long Term Secrets To Short-Term Trading

Figure 10.1 S&P 500 buying first day of each month. 
grabbing smaller investors' attention. The newcomer in this group, though, is the Dow Jones 30 index, a 
futures contract that mimics the world-famous Dow Jones Average. I expect this to become an even more 
important index to trade in the future. 
The strategies discussed here are based on the S&P 500 for one simple reason; we have more data 
because this stock index began trading in 1982, the Dow 30 in 1997. But, the strategies can be applied to all 
the stock indices; just alter your stop based on margin, contract size, and current volatility. 
I went back to 1982 and tested buying the S&P 500 index on the open of the first trade day of every 
month with an exit on the first profitable opening. The stop I chose was only $1,500, but was not used on the 
day of entry; however, after the entry day it was in place at all times. There have been 129 trades making a 
net gain of $73,437, about $7,000 a year for trading only once a month. The numbers of this system are 
excellent; the accuracy is 85 percent, average profit per trade (that's net gain, winners minus losers, divided 
by total trades). Drawdown came in at $3,325, less than 5 percent of total gains. This is good stuff (see 
Figure 10.1). 
Target Months 
If you are getting the hang of this game, you may have already asked yourself if some months do 
better than others. The answer is yes, as the following printouts show. The story they tell is that the worst 
months, in the past 16 years, have been January, February, and October. These should be your target months 
to avoid or be cautious of seasonal trading. I suggest you study the month-by-month recaps presented in 
Table 10.1. 

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Making It Better 
Although some of our speculative competitors are aware of this repetitive pattern, most do not 
consistently take advantage of it nor have they figured out about skipping some months. That is a big 
improvement, but we can do even better. 
How? By only taking these first-of-the-month trades when Bonds are in an uptrend. As I demonstrated 
earlier, an uptrend in Bonds is conducive to stock market rallies. A pretty good rule, and easy to follow, is to 
only buy on the first of a month, any month-if Bonds have closed higher the day prior to our anticipated 
entry than 30 days ago. This is evidence Bonds should be supportive of a stock market rally. 
Month-End Trading in the Bond Market 
Next, let's look at buying the first trading day of every month in the Bonds, as we did in the S&P 
500. The results are quite profitable based on the rules of using an $1,100 stop and exiting on the first 
profitable opening. This approach to trading comes close to 70 percent accuracy and has a very large average 
profit per trade considering that we are in for only one day on average (see Figure 10.2). 
We can dramatically improve these results by simply by-passing the poorer performing months which, 
as shown in Table 10.2, are January, February, April, and October, with December being a question mark. 

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