9

My friend told me this but I can't find any information about it on the internet.

His theory is that traders generally tend to close their positions on the Friday because they don't want to be exposed during the weekend when the market is closed and they can't sell their stock.

That reasoning seems to make sense...

but any truth to this?

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    If it were true, everyone would buy on Friday evening and sell on Monday morning. As demand rises, the prices on Friday evening would increase. So even if the theory is correct, the prices would still be higher :) – Dheer Aug 5 '11 at 3:57
18

It is called the Monday Effect or the Weekend Effect. There are a number of similar theories including the October Effect and January Effect.

It's all pretty much bunk. If there were any truth to traders would be all over it and the resulting market forces would wipe it out. Personally, I think all technical analysis has very little value other than to fuel conversations at dinner parties about investments.

You might also consider reading about Market efficiency to see further discussion about why technical approaches like this might, but probably don't work.

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    Great point, as soon as anything becomes "true" or predictable it is taken advantage of, which in the case of markets, soon reverses the truth it had in the first place. That is, unless you can find something that is true but virtually no one else knows. – Nicole Aug 5 '11 at 21:53
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    Yeah, good luck with that. With so much software out there looking for stock market patterns I'm guessing it would take very little time for the secret to get out on a sure-bet strategy. – JohnFx Aug 5 '11 at 23:03
  • It certainly is a force working on Fridays. However, there is another force which is short position closing. And yet another which is just plain some institution got an urge to buy or sell the stock. Or maybe someone got drunk in a HFT firm. It's not that it doesn't exist, but that you can't use as a thumb rule because it isn't the only thing happening late Friday. – gengren Jan 25 '16 at 2:20
11

There are classes of 'traders' who close their positions out every evening, not just on fridays. But their are other types of businesses who trade shortly before or nearly right at market close with both buys and sells

There are lots of theories as to how the market behaves at various times of day, days of the week, months of the year. There are some few patterns that can emerge but in general they don't provide a lot of 'lift' above pure random chance, enough so that if you 'bet' on one of these your chances of being wrong are only very slightly different from being right, enough so that it's not really fair to call any of them a 'sure thing'. And since these events are often fairly widely spaced, it's difficult to play them often enough to get the 'law of large numbers' on your side (as opposed to say card-counting at a blackjack table) which basically makes betting on them not much different from gambling

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    Also, the transaction costs of such a strategy mean you would have to not only be right about the pattern, but it would have to be pronounced enough to cover your trading costs. – JohnFx Aug 5 '11 at 21:24

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