Free stock traders almanac

The month of January in the stock market has strong significance in predicting the trend of the stock market for the rest of the calendar year. This phenomena occurs between the last trading day in December of the previous year and the fifth trading day of the new year in January. The January Effect is a result of tax -loss selling which causes investors to sell their losing positions at the end of December.

The January Effect is predicated on the idea that these stocks, which have been sold off to realize the tax losses, will be at a discount to their market value. Bargain hunters step in and load up on these laggards and this creates buying pressure in the market.

The five exceptions to this rule were in, and Four out of these five years were war related, while was a flat market. On the flip side of the coin, when the first five days of January are lower, there is no statistical bias of the market, up or down. It is anyone's game at that point. Not a very reliable indication.

A down January is a bad omen for the stock market. The publicity of the January Effect has watered down the potential net gains from it over the past few years. In fact, history suggests that small cap stocks far outperform large caps during the middle of December. To avoid the sharp mark up in shares in the beginning of January, institutional traders have started accumulating many beaten down small cap stocks in December to get a head start on the January Effect. This shift has been seen in the markets and December has also become a very strong year for the stock markets, also known as the December Effect.

There are still debates between finance experts if the January effect anomaly can be properly traded. Since some investors do not find a logical explanation behind the January effect, they prefer not to put an emphasis on the January price move when making future decisions. If the statistics show that in 31 out of 36 cases the yearly trend matches the January price behavior, do you really want to play against the odds?

We are traders and we believe in trends. Thus, instead of continuing the debate over its accuracy, I am going to share with you a few trading strategieswhich will help you trade a yearly price move based on the January effect forecast. This is the daily chart of a small cap company names Build-a-Bear. The image shows the stock price move of the company between Jan 2 — 31, As you see, the price of BBW opens at 7.

Thus, the January effect efficient market hypothesis suggests that the overall trend by the BBW will be bullish. If you believe in the January anomaly, you will definitely try to trade the Build-a-Bear stock over the year. On the zoomed out daily chart of Build-a-Bear we see an impulsive stock move. Since the January effect provides a one-year forecast, trades based on the January effect should be implemented on bigger charts — daily or weekly.

Since the January effect suggests the market directionyou need to decide something when trading this anomaly. Are you going to hold the stock during the whole year?

Or you are going to time the corrections throughout the year. If you choose the second option, then keep reading! Although some traders feel that price action trading is too simple, when it comes to the January effect, it gives all we need — support and resistance levels. Thus, this strategy is the simplest for trading the January anomaly. When the price is trending, it creates tops and bottoms. On the daily chart, every bottom should be perceived as a support and every top as a resistance.

If the price breaks a support, you should exit your trade. If the price ophangsysteem forexplaat free stock traders almanac resistance, you hop back in the market. In the image below, you will see how the price action trading strategy works on the January effect of the Build-a-Bear bullish move:.

Every broken resistance is an entry point demutualization stock market nigerian every broken support is an exit point. Thus, I have marked the important supports with red and the important resistances with green on the chart. The blue circles indicate the highs and lows, which create these levels. First we go long in the beginning of February when we have identified the bullish January move.

The price creates a top, but it breaks the support placed on its previous bottom. Thus, we close the trade and we mark the top as resistance.

I know this is a bad start, but if you wait for the next two trades, your patience will be rewarded. As you see, the further price increase breaks the resistance we placed and we go long for a new price increase.

This is exactly what happens. We stay in the trade from the middle of March, until the end of July. We mark the top of the rising wedge as a resistance level, which we will use to enter the market in case of a new price increase.

Then we stay out of the market for almost 4 months since the correction of the trend is pretty deep. The BBW price needs time in order to break the resistance placed on the top of the wedge. At the same time, the price forms a double bottom chart patternwhich reminds us that soon it might be time to go long.

The price breaks the resistance at the end of October, and we buy BBW again. The price starts a new increase and we are back in business! We hold the stock for almost two months until the price breaks one of its previous bottoms at the end of December, Again, the best indicators to trade the Jan effect are the on-chart tools like the MAs. For this strategy I use three SMAs: The period SMA is the signal line.

When the 50 SMA breaks the SMA in a bullish direction, we go long. When it breaks it in bearish direction, we close the position. The period SMA is used to signal a reversal on a much larger scale. In other words, if the month of January says that the yearly price effect will be bullish, a break of the price through the SMA will defeat this theory. Let me now show you how the three SMAs can help you trade the January effect:.

This is the same daily chart of BBW showing the overall price increase in after the bullish month of January. The blue line on the chart is the 50 SMA, the red line is the SMA and the green line is the SMA.

We go long in the beginning of February after the month of January told us that the year is likely to be bullish. Notice the blue circle which comes right after our entry point on the chart.

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This is the moment, free stock traders almanac we closed our position in the January effect price action trading strategy due to a break in support. This time, though, the SMA sustains the pressure of the 50 SMA and we see no break of the blue SMA through the red one.

Sell In May And Go Away

Thus, we stay in the market and we keep our position. Yet, when the deep correction comes in late summer, we are forced to close our position relatively lower than with the price action trading strategy. This is because the period SMA needs more time in order to move according to the price decrease and to perform a bearish crossover with the SMA.

This happens in the red circle. Two months later, the 50 SMA gets back above the SMA and we go long again following the trend of the January effect. We hold the BBW equity for more than 2 months until the end of December. Did you notice the black arrows I placed on the chart? These three arrows show the moments when the BBW price tests the period SMA as support. If the SMA is broken in a bearish direction, I advise you to abandon your hopes from the January effect.

Fortunately, in our case the January effect is valid and we stay in the market. This is so because the SMA successfully supported the BBW price three times. During this trading strategy we opened two positions for almost 9 months in total. The Bill Williams Alligator is another on-chart trading tool, which is suitable for trading the January effect anomaly. In this strategy, we will enter the market when the Alligator wakes up and starts eating.

We will exit the market when the Alligator starts falling asleep. This indicates consolidation or correction. Have a look at the image below in order to see how this January effect strategy works:. We go long in the beginning of February. Then we stay out of the market for another two weeks until the alligator starts waking up. When the lines are distant enough, we go long. Notice that in this trade the Alligator provided the earliest possible entry and also the earliest exit. We caught the whole bullish move before we exited due to an Alligator falling asleep.

Then the alligator completely falls asleep for a month. In the middle of October the lines began to separate again and we go long as the Alligator is awakening. We hold the trade for two-and-a-half-months until the end of the year. My opinion here is that the Alligator trading system outperforms the other two strategies. Since the Alligator is a bit more sensitive on price moves it provided an extra fourth position. This trade happens in the middle of the year of The Alligator managed to cope with the deep correction in the best possible way.

On the other hand, the SMA strategy held us with our position until the end of the correction — which hurts! The Alligator gives a bit earlier entry signal, putting us in the market right at the beginning of the trending move. Learn to Day Trade 7x Faster Than Everyone Else Learn How. Free Trial Log In. January Effect in the Stock Market. January Effect Trading Example. January Effect Yearly Trend.

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