Our first goal in order to trade the best and worst 6 months of the year is to identify the months that these yearly patterns occur. We can not identify the best tools to use if we do not know when to use them. As you will learn in this lesson, different technical analysis tools work better during different times of year.
The best 6 months of the year for the stock market is from November to April. This is the time of the year when the market goes up the most. All stocks have a tendency to go up during this time of year, even small caps. Between the months of November and April, the market has had some of the best strong uptrends.
The 6 month period called the worst 6 months of the year (May to October) is characterized by a sudden market sell off usually taking place in May. Sell in May and go away is a cliche you will hear passed around during this time of year. This is the origin of that worn out cliche. Ponder this for a moment. There are two people invested in the Dow Jones during the worst 6 months of the year and the best 6 months. Each investor sold out at the end of the 6 month period and waited until the next year to invest in that specific period again. Both investors started out with $10,000 and both did this every year from 1950 to 2004. The person who was invested during the worst 6 months of the year would have his $10,000 turn into $9,400. The person who was invested during the best 6 months of the year would have his $10,000 turn into $490,000!
In the best 6 months of the year, you should use a trend following strategy. Buy high and sell even higher will work. In a rising tide, all ships have a tendency to rise. So too do stocks during the best 6 months of the year. When you see a stock that pulls back during this time of year, you can jump in and buy it and you will often be rewarded. It really is good times during the best 6 months of the year.
During the worst 6 months of the year, a trading strategy works the best. You should not buy breakout moves during this time of year because they have a greater chance of resulting in a head fake. Bear market funds perform best during this time of year. Just watch out for lower volume stocks during what is also known as the summer doldrums. It is easier to get trapped in a lower liquidity stock during this time of year. Technical indicators used for trading like the RSI or the stochastic will give you the most accurate signals during this time of year.
Keep in mind that the worst losses come as the market changes into either the best 6 months of the year, or the worst 6 months. This means that the months of May and November are especially dangerous. Usually what you can do is to demand confirmation of the start of either the best 6 months of the year or the worst 6 months of the year. You get this confirmation by looking at the MACD either in the daily or weekly time frames.
I can stress enough how important it is to adjust your trading strategy depending on what time of year it is. On a personal level, I found that my trading profits greatly improved after I learned about these two distinct 6 month periods.
The best 6 months of the year for the stock market is from November to April. This is the time of the year when the market goes up the most. All stocks have a tendency to go up during this time of year, even small caps. Between the months of November and April, the market has had some of the best strong uptrends.
The 6 month period called the worst 6 months of the year (May to October) is characterized by a sudden market sell off usually taking place in May. Sell in May and go away is a cliche you will hear passed around during this time of year. This is the origin of that worn out cliche. Ponder this for a moment. There are two people invested in the Dow Jones during the worst 6 months of the year and the best 6 months. Each investor sold out at the end of the 6 month period and waited until the next year to invest in that specific period again. Both investors started out with $10,000 and both did this every year from 1950 to 2004. The person who was invested during the worst 6 months of the year would have his $10,000 turn into $9,400. The person who was invested during the best 6 months of the year would have his $10,000 turn into $490,000!
In the best 6 months of the year, you should use a trend following strategy. Buy high and sell even higher will work. In a rising tide, all ships have a tendency to rise. So too do stocks during the best 6 months of the year. When you see a stock that pulls back during this time of year, you can jump in and buy it and you will often be rewarded. It really is good times during the best 6 months of the year.
During the worst 6 months of the year, a trading strategy works the best. You should not buy breakout moves during this time of year because they have a greater chance of resulting in a head fake. Bear market funds perform best during this time of year. Just watch out for lower volume stocks during what is also known as the summer doldrums. It is easier to get trapped in a lower liquidity stock during this time of year. Technical indicators used for trading like the RSI or the stochastic will give you the most accurate signals during this time of year.
Keep in mind that the worst losses come as the market changes into either the best 6 months of the year, or the worst 6 months. This means that the months of May and November are especially dangerous. Usually what you can do is to demand confirmation of the start of either the best 6 months of the year or the worst 6 months of the year. You get this confirmation by looking at the MACD either in the daily or weekly time frames.
I can stress enough how important it is to adjust your trading strategy depending on what time of year it is. On a personal level, I found that my trading profits greatly improved after I learned about these two distinct 6 month periods.
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