Seasonal Trends to Look for When Swing Trading

The stock market fluctuates constantly. Every day, stock prices rise and fall, sometimes by significant amounts. Investors who want to profit from these fluctuations should consider utilizing swing trading to boost their stock portfolio. Swing trading is a relatively easy way to use short-term stock fluctuations to your advantage. By studying seasonal trends and applying them to their trading approaches, investors benefit from the variable nature of the stock market.

Swing Trading

Swing trading is a method in which stocks and options are held for short periods of time in order to profit from price swings. Unlike day trading, where traders hold stock positions for only a day, swing traders typically hold their positions between two and six days. However, they may opt to hold them up to two or three weeks. 

The overall goal of swing trading is to identify market trends and profit by trading within these trends. Understanding swing trading and applying seasonal trends to your trading strategy can help you make money from short-term market fluctuations.   

Seasonal Stock Market Trends

The market tends to repeat certain seasonal trends that affect individual stocks and the market as a whole. Understanding these trends can help investors make better buying and selling decisions. While learning about seasonal trends gives you a distinct trading advantage, remember that stock performance is never guaranteed.

The January Effect

When it comes to analyzing stock market trends, no period of time is studied as intensely as the month of January. The January Effect refers to a pattern where share prices rise during the last few days of December and rally during the first week of January.

Investors tend to dump stocks at the end of December to claim tax losses, and bargain hunters swoop in during early January and purchase them at a discount. Statistically speaking, if the S&P 500 closes higher during the year's first five trading days, it has an 86 percent chance of ending the year higher. Knowing about the January Effect can help swing traders have a positive start to the year.

May to August

In general, the market tends to become less volatile between May and August. In other words, prices tend to stay relatively stable with few dramatic increases and decreases. While less volatility signals less risk for investors, it also reduces the number of opportunities to make as much money as you can in a more volatile market.

October to April

Stocks tend to perform well between the months of November and April. Historically, the S&P 500 index gains 7.1 percent between November and April and only 1.4 percent between May and October. Financial analysts have tracked this pattern for decades. To capitalize on this trend, swing traders may want to consider jumping into the market in late October.

While nothing is guaranteed when it comes to the stock market, knowing about the market's seasonal trends offers profound advantages to all investors, and swing traders should take advantage of this readily available information. While there's a lot of data to sift through, becoming knowledgeable about seasonal investment trends can greatly boost your odds of successful trades.