Sell In May And Go Away

Trading Holidays: Sell In May And Go Away?

“Sell in May and Go Away” has been a trading strategy followed by many for years now. What has commonly been observed is that the months of July and August tend to be slow for not just the futures markets, but stocks as well. Even commodities see some seasonality. The most obvious reason for this slowdown is that summer is the time when a majority of people go on vacation. And, even if you don’t go on holiday, you can almost hear the beaches beckoning and the barbecue just waiting for a celebration of the weather, which doesn’t exactly put you in the mood for trading.

It isn’t just individual traders vacationing that causes this lull in the financial markets. Large institutional investors and professionals who place orders for hedge funds, banks, and other financial organizations also take a break at this time. This leads to low liquidity and low volume conditions, which is not the best scenario for trading.

Market Characteristics During the Summer Doldrums

With low volatility and low volumes, the markets tend to behave more unpredictably than usual and you are likely to see shorter duration trends during the summer months that are not as strong as the rest of the year. The problem is that in such market conditions, charts tend to give false signals.

On the other hand, news events could lead to wider fluctuations than the development actually justifies. In fact, small trades could lead to some big price moves.

The slowdown also impacts trader psychology. The summer conditions require immense patience and discipline if you do decide to continue trading. There are times when traders are tempted to take aggressive positions at this time, either to relieve boredom or to counter earlier losses. If you are not trained to wait for your trading signal, remember that during the summer months it can happen that you will sit in front of your monitor and ending the day without a signal or even several days, this will be the ideal time to ruin your trading capital.

While summer might be a good time for you to take a break too, if you do wish to continue trading, there is no reason why you shouldn’t. All you need to do is revise your trading style to match the market conditions. The fact is that the summer doldrums aren’t as bad as they used to be even a decade ago. With increasing globalization, seasonality is much less dramatic than it used to be. Just focus on the OPEN and take profit and be done for the day.

The summer need not be time wasted as long as you are aware of the changed market conditions and alter your trading accordingly. Spend more time reading and researching before placing trades to avoid falling prey to false breakouts and unreliable charts. If we look back, last years best trading month was exactly the month of July that almost hit 7K in profit and this years month of August is almost hitting 4K in profits so don´t waist your time but don´t over trade during the summer doldrums.

With only one week left to end the summer doldrums and looking back to the price action that we have seen, I suspect that we will see some fire works during the best trading months of the year, September, October, November and December.

Live trades taken in the Live trading room on Monday August 26th 2019:

 

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Hope this helps,

Alexander Soares

 

 

 

 

 

 


Also published on Medium.