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The strategy is simple and requires no further explanation. The question is: why does this strategy work?
Tuesday is often considered an ideal day for a positive change in market sentiment. In bearish markets, investment firms close positions to realize profits on Friday. They may also close positions to maintain liquidity for potential client withdrawals received over the weekend. Retail investors may get cold feet after the weekend and sell their positions on Monday. Investment firms then try to take advantage of falling prices by reopening their positions on Tuesday.
There are several notable examples of successful Turnaround Tuesday setups. Particularly after a market crash, Tuesdays have often been days when market sentiment turned positive again.
On Monday, October 19, 1987, the Dow Jones Industrial Average fell by 23% (508 points). On Tuesday, October 20, 1987, the Dow continued to fall until it reached a low and the market began to recover. By Friday, the market had made a significant comeback. Despite the panic, Tuesday provided an excellent buying opportunity.
A similar situation occurred on October 28, 1997. On Monday, October 27, the Dow lost more than 7%. The decline continued on Tuesday. A low of 6,936 was reached before the market finally began to recover and closed the day at 7,498. Once again, Tuesday provided a favorable buying opportunity.
In August 2015, the Turnaround Tuesday strategy produced another notable example. On August 24, the DAX came under heavy pressure, resulting in a sell-off. The lowest level reached by the market was 9,338 points, followed by a closing level of 9,648 points. On Tuesday, the market continued its recovery. An investor who bought during the turnaround and sold at Tuesday's market close could have captured approximately 480 points in less than 24 hours.
When is a position opened? If the DAX is trading below its 34-day moving average on Monday afternoon, a long position is opened at market price on Monday evening or early Tuesday morning.
When is the position closed? The position is closed at market price on Tuesday evening shortly before the market closes or early Wednesday morning.
Description based on whselfinvest.de – YouTube video by Andre Stagge
