When your calendar hits October you know it's time to shop.
Christmas, Hanukah, and the New Year are just around the corner and the tech companies know it. They dedicate millions to advertising and sales promotions, trying to get you to buy the latest and greatest (and expensive) toys.
As long as the Holidays are celebrated, there's likely to be an end-of-the-year surge in tech companies' incomes. As long as schools teach the same (outdated) materials in Finance courses, then investment banks & funds will continue to pay attention to earnings reports.
Sometimes, the simplest signal is the best signal.
If you trade stocks (or derivatives with brick & mortar underlying), then check if your strategy can beat a simple seasonality test. If you're not outperforming your Calendar, then it's time to incorporate seasons into your trading and shelf your favorite strategy for the rest of the trading year.
What strikes me about your hypothesis is that it hasn't worked since 2015. Examine the entry ("Swing") price vs. the exit price pf the previous trade. You are paying a huge price for being out of the market.
For you, a simple Buy-and-Hold strategy would have been much more profitable. Buy 1986-10-13 at $0.12. Hold 2021-01-11 at $218.47. Profit $218.35. 181,958%
Of course, I've oversimplified because I don't know the composition of your portfolio. To get this kind of return you'd have to have owned AAPL, AMZN, GOOG, NFLX, etc. But what really got me is the very significant difference between exit and entry prices, particularly in recent years -- gain that you did not realize. 37% between trades 33/34 and 35% between trades 34/35. Compounding this with unrealized gains over just the more recent years means you ought to abandon your calendar strategy and look elsewhere. You can't afford to be out of the market between January and October.
> If you trade stocks (or derivatives with brick & mortar underlying), then check if your strategy can beat a simple seasonality test.
> If you're not outperforming your Calendar, then it's time to incorporate seasons into your trading and shelf your favorite strategy for the rest of the trading year.
Merely a suggestion to compare your strategy's performance with a very VERY basic benchmark - seasonal trading.
And if you aren't beating seasonality, then perhaps integrating it would be helpful. I thought "shelf your favorite strategy" was a funny over-exaggeration.. obviously not to be taken as advice.
Most strategies are worse than putting 100% of your capital into 1986 Microsoft, but that's only because predicting the past is easy.
Imagine it being 1986. You've got a few grand in your pocket that you'd like to invest/trade. Do you put 100% into this new tech company and hold it for 40 years?
You'd be in drawdown for nearly 4 years straight before you see a single penny! And then what? Do you exit at 50% gains? 100%? 1,000%?
The point of any strategy is to restrict your risks intelligently, not grow an ulcer by being in tons of drawdown, and outlast everyone else.
tobyz7
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@EmpiricalFX, Obviously no one wants exaggerated drawdowns. However, intelligent selection of stocks (avoiding speculative penny stocks, etc.) with a sound system for minimizing losses and attention to the overall state of the market should provide superior gains regardless of blind seasonality rules. Stocks that make new highs often continue to make new highs. The converse is true for stocks that make new lows. Avoid trying to catch a falling knife.
A seasonality model that has you continually buying into stocks at a higher price that what you had last sold them for leaves a ton of money on the table as unrealized gains. That's the logical equivalent of big drawdowns. You want to avoid both. They reek havoc on long-term portfolio growth.
nestormiranda054
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Such a simple concept but yet very effective. Thanks!
For you, a simple Buy-and-Hold strategy would have been much more profitable. Buy 1986-10-13 at $0.12. Hold 2021-01-11 at $218.47. Profit $218.35. 181,958%
Of course, I've oversimplified because I don't know the composition of your portfolio. To get this kind of return you'd have to have owned AAPL, AMZN, GOOG, NFLX, etc. But what really got me is the very significant difference between exit and entry prices, particularly in recent years -- gain that you did not realize. 37% between trades 33/34 and 35% between trades 34/35. Compounding this with unrealized gains over just the more recent years means you ought to abandon your calendar strategy and look elsewhere. You can't afford to be out of the market between January and October.