“The Best & Worst Months For Stocks”

Have you ever wondered whether there is such a thing like “The best and worst months for stocks”?

I think the easiest way to explain is to look at it from the perspective of an Investor and from a Trader point of view.

From the perspective of an Investor, there is a usual trend of a ‘Santa Claus Rally‘ towards the year end. The heat accumulates from the mid of December although in the recent years, the market players tend to catch it earlier and they start as early as end of October.

Why is this Santa Clause Rally important to us as an Investor? The explanation is because most working class will get their bonuses. They will somehow park part of their fund into stocks in anticipation of a stock rise. When everyone starts buying, stock price rises. You will get the Santa Claus Rally going full stream towards the end of the year.

The rally is added with more power with the year end ‘Window Dressing‘ by companies which had their closing in the end of December. In order for the CEOs to have a better presentation in their AGM, the usual practice is that they would want their company stock price to close as high as possible at the very end of the month. This will in fact drive up the stock price as well.

The ‘October Effect‘ which is self explanatory happen in the month of October. It was the psychological expectation from the previous major catastrophic market crash that prompted the market players to be extra careful on October. Majority of them have the fear of history repeating itself. They know about the October 1929 which lead to The Great Depression and the October 19, 1987 which lead to a 22.6% plummeting of the Dow.

For a Trader, they trade in a different kind of environment. Although they would still observe the Best & Worst Months For Stocks, they know what they need to do in order to capitalize on it. Their priority is to trade with the current trend, the current momentum and the current wave.

They use Charts extensively to determine the trend. Some of them will use up to the minute chart to determine the best momentum for entry and exit. To the Traders, a single cent difference will make a big difference in their trade over the long run because they trade according to the market fluctuations. They look for the lowest price to buy and the highest to sell.

Chartist use support/resistance, trend lines, channels, break out of triangles, MACD, Stochastic, ADX, Volume, MA and many others to determine their decisions.

The next best level to spot an opportunity is the Level 2 Quotes. It is the window to the number of supply and demand for a particular stock. It comes in real time which means the data are current and you will have an insight what the market makers and the traders have come to a agreeable price. I feel that this is the highest level of data available to any Trader to capture the potential profits.

To me as a Trader, there is no Best & Worst Months For Stocks. I don’t look out for the best and worst months. I rely on the Level 2 Quotes and the Charts to deliver the potential profits.