How to sidestep this market glitch

I hope you caught the news yesterday that my Bread & Butter Trading strategy has just opened its doors again.

If you’d like the chance to test this out for yourself, risk-free, then please click here to find out how.

Seasonal variations

The “silly season” doesn’t just affect news stories and sightings of big cats in the Home Counties … it also affects the stock markets.

With many traders on holiday, volumes over the summer tend to be significantly lower – and this summer has been especially thin.

These thin volumes aren’t a bad thing in themselves, but it does make market behaviour even harder to predict than usual.

Many traders will be breathing a sigh of relief now that September is upon us – although traditionally, the word “September” can put fear into the heart of the most bullish traders.

What’s the September effect?

The “September effect” as it’s known, is most widely identified with the US market, but is also found in the UK, French, German and Japanese markets.

Since 1929, September has been the worst single month for US stocks, with the S&P 500 losing an average of 1.3% (compared with an average monthly gain of 0.5% for the year as a whole).

September and October are traditionally considered to be the two worst months of the year, offering negative returns on average and a greater likelihood of a major crash than any other two-month stretch.

So, what happens in September that’s so awful??

Surely it can’t all be to do with trader’s coming back from holidays and mucking things up? Or with the general doom and gloom as the nights drawing in?

Well, September has traditionally been the month when companies admit that their yearly forecasts may have been too optimistic; and it’s often the time of the year when analysts begin to rein back their expectations. (However, these days, this information often comes earlier.)

Plus, there’s the important factor of the September effect becoming a self-fulfilling prophecy. Many investors will take their profits off the table at the beginning of September, in anticipation of a pull back during the next four weeks.

Why I love September

However, for those of us who are playing the markets both ways (buying and selling) – September is good news.

More traders back to their desks means a return to “business as usual” – sure, I can’t predict what the markets will do, but we’re more likely to see the patterns of behaviour that we come to expect – which means that our indicators and signals will be working better for us.

Plus, when the markets take a downturn (which the September-effect doomsayers predict) it usually comes hand-in-hand with increased volatility – perfect for day traders to snatch up profits!

What we need to know

So, if you are a buy-and-hold investor, you may be feeling wary. Should you try to time the market and sell up? No one can consistently time the market right. And by trying to get out at the top, you’re asking to get it right twice – because you need to get back in at the right time, too, or you’ll miss the swing to the upside.

However, if you’ve a stock that you’ve been holding on to for some time, and it’s nearing your target – you might want to consider giving up the last few points in return for releasing that capital.

On the other hand, if you’re looking for short-term swings in the market, then you can be rubbing your hands in glee. Now’s a great time to sharpen up your trading tools and get to work.

And if you’re in need of a trading strategy, you can always check out the one I follow here.

Related posts:

The “September effect” – are you prepared? A market timer that really works