Many traders and investors seek an advantage by following seasonal market trends. Following these trends may appear to be the easy path to riches, but it’s not. Trends are not a guarantee … of anything.
You could get bull-dozed
We are coming upon a seasonally strong period for markets. Traders and investors are sanguine about risk during the holidays, and they are willing to step in and buy stocks even as prices rise higher. This approach is often punished severely, especially when markets are near all time highs – as they are currently.
Yet, there is something to say about historical evidence. When the markets are up decisively for the year, the record is very favorable for the remainder of the year. Markets go higher – and often much higher. Just typing that gives me shivers. When the crowd wins out, don’t take a contrarian stance unless you want to get bull-dozed. (Sorry for the pun – I couldn’t help it.)
Why I ignore seasonal market trends
I don’t often pay attention to seasonal market trends. As the American economist Burton Malkiel has written (many times), trading is a random walk. Every situation or condition is different from the one before it and the one that follows.
Back in 2018, we were in a similar situation. Markets had a great year and appeared to be headed much higher. On October 4, the market hit all time highs, but a week later it started falling. December was brutal. The seasonally strong bullish trend did not happen. Instead, we experienced wild volatility swings.
How to trade over the next couple of months
My approach for handling seasonal trends: play it safe so you don’t get burned.
What is playing it safe? Follow the market trend cautiously. Do not get swept up into the crowd! Keep your positions light, hold plenty of cash, buy protective index puts, cut trades when they’re not working, sell when they are profits to be had and most importantly, check your ego at the door.
This advice will help you enjoy the holiday period – and hopefully make some nice profits along the way.