Why day-of-the-week investing is ineffective

Day-of-the-week investing is a strategy stipulating that certain days of the week are better for buying or selling stocks. Investors who follow the theory may seek to buy or sell stocks only on a particular day of the week because they believe it statistically outperforms all others.

There are problems with this theory that make it controversial, however. Let’s explore them and why it may be best to avoid this type of strategy altogether if you’re an investor.

First things first: What is the day-of-the week investing strategy?

The day-of-the-week investing strategy is a trading approach based on the belief that trading on certain days of the week is advantageous. Investors who ascribe to this theory and strategy may look at historical patterns, weigh market sentiment and investor behavior as it relates to days of the week and assess trading volume on days of the week to determine an exact strategy. While some investors certainly ascribe to this strategy, there is plenty of evidence that it’s not effective.

What is the evidence that trading on a certain day of the week isn’t effective?

The lack of evidence that trading on certain days of the week is advantageous, the lack of agreement among investors about which day is the best to trade and the belief that the strategy would be impossible for the markets to maintain are among the arguments for why it may be best to be skeptical of this strategy.

Keep reading as we dive into each of these reasons in more detail.

There’s a lack of evidence that buying or selling stocks on certain days of the week is strategically better

Although some people believe that trading on certain days of the week offers better returns than others, there’s little historical evidence to prove a market-wide effect (even before accounting for transaction costs).

Determining which day of the week is the best for the stock market depends on what data you consider – and when. Depending on the information you’re looking at, the day of the week that looks advantageous might even change.

Jacob Manoukian, U.S. Head of Investment Strategy at J.P. Morgan Wealth Management, shared: “We wouldn’t focus too much on which day is the best for the stock market.” Per Manoukian, through 2023, the day of the week with the highest share of positive changes was Wednesday at 54.8%. Tuesday saw the lowest share of positive gains at 51.3%, which – in Manoukian’s words – is “barely better than a coin flip.”

Another thing that makes it difficult to determine which day of the week is most advantageous or volatile? Chance. It’s a simple but powerful concept: A range of factors can affect the market’s volatility on any given day, including investor fears, major world events, large-scale economic uncertainties and even holidays. It’s these developments that tend to cause changes in the stock market, not the day of the week on which they occur. It’s also impossible to predict exactly when major events will unfold.

Investors who ascribe to the strategy can’t agree on which day of the week is best

Another “hole” in the day-of-the-week theory is the fact that its followers don’t agree on which day of the week is actually best. For opponents of day-of-the-week investing, this lack of consensus further proves why such a strategy isn’t effective.

Let’s dig into this. Some market participants, for example, consider Monday the best for buying stock. Believers in the so-called “Monday Effect” think the stock market tends to drop on Mondays – perhaps because there’s a belief that bad news is often released over the weekend or because it’s perceived that traders’ moods may be gloomier at the start of the work week. According to this theory, Friday is the best day for selling stock since prices are thought to be higher – that is, before their anticipated Monday dip.

As for Manoukian? He’s not convinced. “Interestingly both the best single day – an 11.6% gain in October 2008 – and the worst single day – a gut-wrenching 20.5% drop in 1987 – happened on a Monday,” he said.

Others believe the best day for trading changes with specific market conditions, shifting depending on if the market is bearish (experiencing prolonged price declines) or bullish (on the rise).

In a bull market, some say Friday is best for buying stocks because the market is at its most volatile on that day and thus tends to fall the most. Wednesday and Thursday, however, are more likely to see stock prices rise. In a bear market, some say the market is at its most volatile on Monday and Tuesday, when stocks tend to fall the most. In contrast, some say Thursday is a good day for selling because stocks tend to rise. All of that said, there are plenty of reasons to be skeptical of this version of the theory, too.

Evidence suggests that if there were actual day-of-the-week patterns in the market they would be impossible to maintain

Academic evidence suggests that any patterns in market timing that allow investors to consistently generate abnormally large returns are generally short lived. Such opportunities are quickly arbitraged away, and the markets become increasingly more efficient as investors learn about these patterns. In other words, if there were a proven statistical anomaly showing that a particular day of the week was better for investing, market participants would exploit it to the extent that it would no longer work.

Alternative investing strategies to consider beyond day-of-the-week investing

While there’s no surefire formula for maximizing investment returns, there are some tried-and-true principles, particularly for buy-and-hold investors.

The bottom line

Simplistic investing strategies – like investing on a certain day of the week – can feel appealing, but unfortunately the data just isn’t there. Instead, it may be helpful to partner with a financial advisor who can guide you through the ins and outs of building a nuanced investment strategy optimized for you.

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