Trying to time the market is a losing trading strategy, but awareness of seasonal trends is not. In fact, knowing how to use seasonal trading trends can help you significantly increase your wealth or save your portfolio from huge losses.
If you have been trading or investing in markets for a while, you have likely heard the calendar anecdotes:
- “Sell in May and go away” – for the next six months, a historically poor period for the markets.
- “The Santa Claus Rally”, which begins during the last few trading days of the year and extends into the first two trading days of the new year. Bulls have seen success about 70% of the time.
- “June swoon”, when everyone starts going on vacation and trading volume slows.
Seasonal trading trends not set in stone. They are simply patterns that show up regularly and “hit” more than they “miss.” It would be foolish to buy or sell solely based on them.
How to use seasonal trading trends to your advantage
However, it is certainly useful to know when the wind is at your back or in your face. You might find the market is much more forgiving during a seasonally bullish time of year rather than a bearish one.
Some of the most difficult times to find bullish trades are during the fall months.
September has a notorious record for dismal performance; some traders call it the “September effect.” Data going back a century proves it’s a terrible month to be a bull for three main reasons: tax harvesting, institutional rebalancing of portfolios, and a sluggish “return to the office”.
On the flip side, April and December share the best record of stock market performance.
December enjoys positive vibes from the holidays, while April boasts first quarter earnings reports. Positive money flows into the markets also impact both months.
Whatever you do, consider the time you may be buying into the market. If you’re doing it on a regular basis and dollar-cost averaging, then you’re doing it right.
During those few months of the year when the market is extra bullish, you might consider upping the ante a bit and adding more to your investments.
