One of the biggest mistakes I made when I first started trading was to not identify what the best and worst 6 month period of the year was. All year round I would use the exact same stock trading method. The market would often surprise me and I would take big losses. I think that dividing the year into the best and worst 6 month period is the best stock trading strategy you can use.
November through April is the best 6 months of the year for stocks. This is the time of the year when the market goes up the most. Whether you are trading large caps or small caps, all stocks have a tendency to rise during this 6 month period. Between the months of November and April, the market has had some of the best strong uptrends.
The worst 6 months of the year for the stock market is from May to October. Markets go down more than they go up during this time of year. The sell off that occurs in April or May of each year, in anticipation of the weakest 6 months of the year, can be quite violent. Amateur traders that do not know about the worst 6 months of the year will often be blind sided in April or May when the big profit taking hits.
During the best 6 months of the year, a trend following strategy of buying high and selling even higher works the best. During this time of year, buying on a pull back will often result in the best trades. Breakout moves where a stock breaks above a previous resistance level also work. Your trend following technical indicators like the MACD or moving average crossovers will give you the most accurate signals during this time of year.
In the worst 6 months of the year, you have to watch out for buying stocks on a pull back. What seems like a pull back and a good entry can turn into a sustained downtrend very easily during this time of year. Also, breakout patterns can often turn into head fakes. Put more of an emphasis on your oscillator indicators like the stochastic during this time of year. The Bollinger Bands often contract during this time of year as trading ranges compress.
The most dangerous time of year for traders is when the market transitions between the best 6 months of the year and the worst 6 months of the year. No one knows the exact date when this transition will take place. Some have chosen to sell out of the market as early as April and then to stay on the sidelines and the safety of cash until after the transition into the worst 6 months of the year is done. On the flip side, some like to buy the market in October ahead of the best 6 months of the year. You can use the MACD to help you better time when these transitions take place.
I know that identifying the best and worst 6 months of the year seems like a really simple strategy. It is. Often in trading, the simpler the lesson is, the better it works. Just remember, do not ignore these 6 month patterns like I did when you are learning to trade.
November through April is the best 6 months of the year for stocks. This is the time of the year when the market goes up the most. Whether you are trading large caps or small caps, all stocks have a tendency to rise during this 6 month period. Between the months of November and April, the market has had some of the best strong uptrends.
The worst 6 months of the year for the stock market is from May to October. Markets go down more than they go up during this time of year. The sell off that occurs in April or May of each year, in anticipation of the weakest 6 months of the year, can be quite violent. Amateur traders that do not know about the worst 6 months of the year will often be blind sided in April or May when the big profit taking hits.
During the best 6 months of the year, a trend following strategy of buying high and selling even higher works the best. During this time of year, buying on a pull back will often result in the best trades. Breakout moves where a stock breaks above a previous resistance level also work. Your trend following technical indicators like the MACD or moving average crossovers will give you the most accurate signals during this time of year.
In the worst 6 months of the year, you have to watch out for buying stocks on a pull back. What seems like a pull back and a good entry can turn into a sustained downtrend very easily during this time of year. Also, breakout patterns can often turn into head fakes. Put more of an emphasis on your oscillator indicators like the stochastic during this time of year. The Bollinger Bands often contract during this time of year as trading ranges compress.
The most dangerous time of year for traders is when the market transitions between the best 6 months of the year and the worst 6 months of the year. No one knows the exact date when this transition will take place. Some have chosen to sell out of the market as early as April and then to stay on the sidelines and the safety of cash until after the transition into the worst 6 months of the year is done. On the flip side, some like to buy the market in October ahead of the best 6 months of the year. You can use the MACD to help you better time when these transitions take place.
I know that identifying the best and worst 6 months of the year seems like a really simple strategy. It is. Often in trading, the simpler the lesson is, the better it works. Just remember, do not ignore these 6 month patterns like I did when you are learning to trade.
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