Traders make trades when they think the odds of being successful are in their favor.
Being aware of the big picture is essential, and that includes the patterns that reoccur every year.
Familiarity with the seasonal tendency of the stock market and the sectors within it is essential.
There's an old saying on Wall Street “Sell in May and go away” (which has worked fairly well, but not always). The pattern was more pronounced back when the nation’s economy was more agrarian-based with capital flows tied to the growing seasons. Nevertheless, the summer still has a reputation for less action, and fewer capital flows, and less wind at your back. We can see below that seasonality indeed plays a role.
Trading is about gaining confidence and perspective. Having an awareness of seasonality can be like checking if the wind is at your back.
Below is the S&P 500 performance since 2001. You can see the months of April and November have the best statistical returns. Over the last 20 years April showed positive returns 16 times or 80% for an average 2.53% return. The same for November 80% with an average 2.19% return. Note March through May is statistically a strong period. Also note that although July is a positive month, one can see that between June and September that there is a soft patch in returns on average (thus the “sell in May and go away”). October may have the reputation as a horrible month for stocks, but it is actually September that is the worst performer on average. Another strong period is the last quarter of the year October through December which are statistically positive and strong months. Awareness of seasonality is often overlooked.
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