If you have never traded the major indices and would like to here is a great seasonal strategy.

Seasonal patterns are well known in finance and one pattern that turns up over and over again is the superior return of major indices over the winter period. There is a saying in Wall St, ’sell in May, and go away’. Essentially that indices are pretty flat during the summer months. Now looking at the chart below you can see that the return on the FTSE 100 if you bought from May through to October each year since 1984 would have given you very minimal returns. There was little advantage to being exposed to the FTSE 100 during the summer. Look at the red line on the chart – a very flat return.

Winter tells a different story though

However, buying from November through to April would have exceeded the return of the FTSE100. Look at the green line on the chart below.

So, the mantra for the UK FTSE 100 would be to buy in November, but sell in May. So around fireworks night in the UK and exiting at the end of April.

Chart

This phenomena is not only unique to the UK. It is reputed across the world. If you take a look at the table below you can see the return of the major indices over winter vs the return over the summer. It shows that over the last 40/50 years the saying has been true. It rarely pays to hold stocks over the summer period. Sell in May and go away.

Chart

Learn more about HYCM

High Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.

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