The party starts in December and continues in the early part of January with some hangover effect. October is the month in which the most famous crashes historically took place. So what is the January Effect?
There is usually a significant rally in the early part of January that actually sets the tone for the rest of the month and sometimes for the rest of the year. The January Effect can be quite a rally but much depends on the strength of the economy, how good December was and is there any catalyst to move the markets. So what is this January Effect? January Effect actually starts in the mid December and tends to favor small stocks. The most profitable period as measure statistically has been found to start from December 31st and end around February 28th with an average rate of return of 6.6% on smaller stocks.
Now, you must know this fact that the January Effect is not guaranteed every year. The best example is the year 2007 when the market became bearish and didnt start to look to bottom out until March 2008. Now January Effect may happen or may not happen but the turn of the month that is the last day of the month and first five days of the next month form a very good seasonal pattern.
Turn of the month is a very good seasonal pattern that actually holds up more often than not. So if you buy stocks at the last day of the month and hold them for the first five days for the next month, chances are you are going to make some profit. This can be a good swing trading strategy. At the end of the fifth day you move your money back into the money market funds.
This system works because the pension funds tend to put new money to work during the holidays and the overall tendency of the market to rise improves. You can do the same on the holidays. Move your money in on the day before the holiday and sell it on the day after the holiday.
The holidays and those times when people traditionally take vacations often lead to higher prices. Fewer traders lead to lower trading volume which in turn tends to exaggerate price moves. People start to feel happy when the holidays approach and buy stocks before they run off to celebrate Christmas, the fourth of July, the Labor Day and so on. After the party the reality sets in the stocks are usually sold off.
The three days before the New Year Eve and the first three days trading days after the New Year are your best holiday bet for making money. Thats because these days fall within the most bullish time period of the year, winter!
There is usually a significant rally in the early part of January that actually sets the tone for the rest of the month and sometimes for the rest of the year. The January Effect can be quite a rally but much depends on the strength of the economy, how good December was and is there any catalyst to move the markets. So what is this January Effect? January Effect actually starts in the mid December and tends to favor small stocks. The most profitable period as measure statistically has been found to start from December 31st and end around February 28th with an average rate of return of 6.6% on smaller stocks.
Now, you must know this fact that the January Effect is not guaranteed every year. The best example is the year 2007 when the market became bearish and didnt start to look to bottom out until March 2008. Now January Effect may happen or may not happen but the turn of the month that is the last day of the month and first five days of the next month form a very good seasonal pattern.
Turn of the month is a very good seasonal pattern that actually holds up more often than not. So if you buy stocks at the last day of the month and hold them for the first five days for the next month, chances are you are going to make some profit. This can be a good swing trading strategy. At the end of the fifth day you move your money back into the money market funds.
This system works because the pension funds tend to put new money to work during the holidays and the overall tendency of the market to rise improves. You can do the same on the holidays. Move your money in on the day before the holiday and sell it on the day after the holiday.
The holidays and those times when people traditionally take vacations often lead to higher prices. Fewer traders lead to lower trading volume which in turn tends to exaggerate price moves. People start to feel happy when the holidays approach and buy stocks before they run off to celebrate Christmas, the fourth of July, the Labor Day and so on. After the party the reality sets in the stocks are usually sold off.
The three days before the New Year Eve and the first three days trading days after the New Year are your best holiday bet for making money. Thats because these days fall within the most bullish time period of the year, winter!
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. Try This 1500 Pips A Day Forex Signal Service! Know These Candlestick Patterns! Get a totally unique version of this article from our article submission service
Posts
No comments:
Post a Comment