How do we as a trader and investor know a great harvest lies ahead for the whole calendar year. There is a methodology probably a myth yet applicable to determine is using, measuring or monitoring the first 5 trading days of the year to start with, understand the "Capricorn Effect" also known as the January Barometer
According to Stock Trader Almanac touching on topics such as
1) The January Barometer, Capricorn Effect,
Capricorn Effect is defined as The January effect is a hypothesis that there is a seasonal anomaly in the financial market where securities' prices increase in the month of January more than in any other month. This calendar effect would create an opportunity for investors to buy stocks for lower prices before January and sell them after their value increases. As with all calendar effects, if true, it would suggest that the market is not efficient, as market efficiency would suggest that this effect should disappear.
The effect was first observed around 1942 by investment banker Sidney B. Wachtel. He noted that since 1925, small stocks had outperformed the broader market in the month of January, with most of the disparity occurring before the middle of the month. It has also been noted that when combined with the four-year US presidential cycle, historically the largest January effect occurs in year three of a president's term.
The most common theory explaining this phenomenon is that individual investors, who are income tax-sensitive and who disproportionately hold small stocks, sell stocks for tax reasons at year end (such as to claim a capital loss) and reinvest after the first of the year. Another cause is the payment of year-end bonuses in January. Some of this bonus money is used to purchase stocks, driving up prices. The January effect does not always materialize; for example, small stocks underperformed large stocks in January 1982, 1987, 1989 and 1990.
2) First 5 Trading Days an Early Warning System.
I am doing a backtest on this indicator warning system as it amazes me. this is what i found using year 2015, 2016 and 2017 chart on Straits Time Index (STI) a true litmus for worldwide financial market. please click on the picture for illustrations, analysis and explanations.
Year 2015
Year 2016
Year 2017
Year 2018
Disclaimer: All news, information and charts shared is purely by my research and personal views only. This is not a trading recommendation or advice but on the basis of sharing information and educating the investment community. Different traders and investors adopt different trading strategies and risk management approach hence if in doubt please approach or seek clarifications with your Financial Adviser, Broker and Banker.
No comments:
Post a Comment