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Virtually every aspect of our life has a seasonal character. Equity markets are no exception. This is a phenomenon that is difficult to explain, but it is possible to take advantage of seasonality to your advantage. And not just medium and long-term investors can profit from it. Even short-term traders can benefit from this information. It is commonly accepted that most of the money on the stock market is generated in the period between 1 November and 30 April (the so-called winter), while the period between 1 May and 31 October (the so-called summer) should be avoided is this just a legend of Wall Street?
In 2012, two professors from the University of Massey wrote two articles on the subject: Are the monthly seasonal ones real? A perspective over three centuries is the Halloween Indicator: Anywhere and always. The results obtained from 108 countries and 319 years of observation, concluded that the summer-winter gap is more than real.
The following table shows the average monthly returns on the stock market:
January and December are the two most profitable months of the year, while September and October show the worst overall performance. As you can see, winter is on average more profitable than summer, which does not necessarily mean that the market behaves the same way every year. Of course, when we observe 300 years of history, the anomalous values are more than expected. However, the general patterns observed over the centuries can really tell a lot about the nature of seasonal fluctuations and thus offer a good perspective. In the end, it is up to you to use this knowledge in your trading activity.
How to use this information in trading? A bullish investor may find it profitable to trade during the month with a higher average yield: December, April, January. For a bearish investor it might be a good idea to open a short position during July, September and October. Of course, it is not much, but in financial markets it is always good to know more than others.
This article does not represent an investment advice. Any reference to past movements or price levels is informative and based on external analyzes, we do not provide any guarantee that such movements or levels may reoccur in the future. In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.
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Source: IQOption blog 2018-11-15 14:57:16