Unlocking the Power of Timing Financial Markets
Seasonal patterns can persist over long periods, offering traders and investors valuable insights into potential entry and exit points.
One well-known seasonal pattern is the “Sell in May and Go Away” [?->] adage, which has been profitable for decades in the US, UK, and Germany.
By holding stocks from November to April investors & traders have historically outperformed the rest of the market by a significant margin.
Christmas, Valentines, Easter, Thanksgiving, Black Friday
In the USA, for example, the consumer accounts for 65% – 80% [?->] of GDP so periods when consumers spend more can have an impact on seasonal trends for various sectors of the economy.
And the holiday season, particularly the final quarter of the year, is when retailers make the majority of their annual sales and profits.
Seasonal economic activity peaks and troughs lead to an impact on markets of all kinds.
Expand Facts & Stats:
- From 1950 to April 2023, the Dow Jones Industrial Average gained an average of 7.3% during the November-April period, compared to just 0.8% during May-October. A hypothetical $10,000 investment in 1950 would have grown to over $1,000,000 by only holding stocks from November to April, compared to just $3,400 if invested during the other six months of the year.
- Applying a simple moving average crossover system to trade the “Sell in May” pattern can increase the outperformance dramatically. From 1950-2023, the Dow gained 8.9% on average from November-April when a bullish cross occurred, versus a loss of 0.5% during the May-October period. This seasonal switching model would have turned $10,000 in 1950 into over $3,000,000 today.
- One detailed academic study found that stock returns in the November-April period beat May-October by an average of 6.5% per year in the UK, 9.2% in Germany, and a whopping 16.3% in Japan.
- The futures market also shows strong seasonal effects. From 2018-2022, a seasonal strategy in crude oil futures returned 13.7% per year on average, with a maximum drawdown of just 4.4%. In contrast, buy-and-hold lost 6% per year with a 75.9% drawdown.
- A simple sector rotation strategy that bought biotech stocks in February and March, energy stocks in April, bonds in the summer, and tech stocks in December returned 17.8% per year from 1989-2022, handily beating the S&P 500’s 10.7% annual gain. A $1,000 investment would have grown to $200,000 versus just $27,000 in the index.
Seasonal trends often have fundamental drivers, such as corporate cash flows, earnings releases, or changes in market participants’ behavior.
For example, the Euro tends to rise in December and fall in January, likely due to multinational companies managing their tax liabilities.
And regular tax season is another seasonal trade opportunity as markets tend to fall into tax day and rise after the selling pressure has eased!
Understanding these underlying reasons can increase confidence in trading seasonal patterns.
Combining seasonality with Algos can further enhance returns.
Seasonal charts are great for seeing what should happen. But you need entry and exit Algos to give confirmation that the expected directional move is likely to happen this time around.
Seasonal patterns can fail in any given year, so it’s crucial to confirm signals with other forms of analysis and to practice disciplined risk management.
We offer a suite of free seasonal and weekly charts covering the most widely traded stocks, indices, forex pairs, and cryptocurrencies. These charts include:
Expand For More…
- Seasonal Profiles: Identify the strongest and weakest months for your favorite trading vehicles.
- Relative Seasonal Profiles: Spot seasonal leaders and laggards compared to the S&P 500.
- Monthly Price Profiles: See which days of the month have the most impact from salary income and household payments such as mortgage costs or even tax months
- Weekly Price Profiles: See which days of the week have the most positive or negative bias and volatility.
- Volume Heat Maps: Identify the busiest and slowest trading periods throughout the week.
- One Crypto Vs Crypto Market Total Discord members can request profiles of any crypto to see how it is trading vs the broad crypto market
We invite you to explore some of our free tools and incorporate seasonal analysis into your trading and investing process.
As with any trading strategy, start slowly, test thoroughly, and always prioritize risk management.
While seasonality can be a powerful tool, it’s essential to remember that past performance does not guarantee future results.
Activities that spike once a year are Seasonal Trends. Some trends you can trade, some are just for fun.