Markets are challenging ourselves to trade every day, no matter what month or season we’re in, notes Bob Lang of ExplosiveOptions.net.
Certain times of year are “supposed” to be easier—like now. From mid-November through December, sentiment and seasonal trends dominate the headlines and drive market action. But don’t forget that it’s the price action that matters, regardless of what month it is.
Yes, there is proof of bullish seasonal trends during this time period. History shows that the stock market is more often up than down during the last six or so weeks of trading. Based on odds alone, it would seem reasonable to say on the bullish side during this time.
Seasonal Trends Are Not a Guarantee
But if the price action is not confirming the bullish optimism, then what? Markets go down as well as up, so just relying on historical occurrences without an objective analysis of current market action creates bias—and bias leads to mistakes.
If you let seasonal trends rather than price action guide your trading, you can get lulled into a state of laziness and complacency, mainly driven by the talking heads who love to share their predictions. In a year when it seems every investment asset class has been a loser, many will cling for whatever gives them hope.
As we have talked about many times before, hope is not a sound trading strategy. Keeping an open mind and trading on the information you have in front of you helps ensure you won’t be trapped by the calendar. Nothing is a guarantee—especially in trading.
Go back to 2018 when we saw new all-time highs hit in early October. The markets then proceeded to fall—and keep falling—in one of the nastiest drops on record. Markets didn’t bounce back until after the Christmas holiday. Many bulls were shaken to the core by what turned out to be a sign of things to come.
My point here is this: Don’t get too comfortable with the status quo. Treat each week, day, and hour of trading differently than the previous one. Don’t trade on hope or expectations. Look at the price action and other technicals, and make trades accordingly.
Learn more about Bob Lang at ExplosiveOptions.net.