Weekday Patterns

During their constant exposure to the market, professional traders often observe patterns in weekly price movement; their acceptance of these patterns is as old as the market itself. In Reminiscences of a Stock Operator, the fictional character Larry Livingston (assumed to be jesse Livermore) begins his career recording prices on a chalkboard above the floor of the New York Stock Exchange, eventually becoming aware of patterns within these prices. The most accepted occurrence of a pattern is the Tuesday reversal, which is taken as commonplace by close observers of the market. When questioned why a strong soybean market on the first of the week is followed by a weak day, a member of the Board of Trade would shrug his shoulders and quote: “Up on Monday, down on Thesday” if this is true, there is a trading opportunity
if a commonly accepted idea is not enough to be convincing, consider the additional rationalization about human behavior: The weekend allows a buildup of sentiment, which should result in greater activity on Monday. Coupled with adding back positions that were liquidated prior to the weekend, this may cause a disproportionate move on Monday, especially early in the session. This pattern may be further exaggerated when a clear trend exists. With this overbought or oversold condition, it is likely that Tuesday would show an adjustment. So much for hypothesizing.
The first aspect of the test was to define the weekday pattern. This was done in terms of the Friday- to-Monday move (close-to-close). Monday always received the value X, regardless of whether its direction from Friday was up or down. For each day that closed in the same direction as the Fridayto-Monday move, another X is used; when the close reversed direction, an 0 is recorded. Therefore, XOXXO means that Tuesday and Friday, represented by 0, closed in the opposite direction from the prior Friday-to-Monday move, while Wednesday and Thursday were in the same direction.