Understand 6 Seasonal Terms in the Forex Market and the Following Stocks
Those of you who are new players in the forex market are certainly not too familiar with the various terms that are in the market. For example, just before the end of the year there is a term called “January Effect” or “Santa Claus Rally” and various other terms.
What is meant by the term above?
Does it reflect the pattern of price movements?
Is there anything to watch out for?
In reality, the price movement patterns in the market are formed based on a certain time period and are related to the actors in the market. The patterns that are formed will show various macro trends and if you follow the pattern, it can be very profitable.
Even so, the existing macro trend does not necessarily guarantee a definite profit, because when you wrongly anticipate the loss will be obtained.
A simple example is the stock price index trend that often rises before the Christmas holiday and the end of the year. But, if you are wrong in anticipating the trend or wrong in choosing the type of stock, the loss will be obtained.
There are several terms that you need to understand related to the pattern of market price movements and can apply to certain periods and seasonality.Following this we will explain 6 terms that are often mentioned and are quite popular among traders.
1.Sell In May And Go Away
The first term comes from the British plain and refers to the fact that during the period from November to April the market had a bullish tendency and the stock prices tended to increase. This is very different when compared to the period from May to October and statistical data do show this.
An example is the performance of shares listed in the S & P 500 index. Traders who sell shares that enter the S & P 500 index in May and make repurchases in October usually earn an average of 8.4% per year.
On the other hand traders who implement the opposite strategy of buying in May and selling in October get an average profit of 5.1% per year. The above calculation includes dividends but does not include the costs of transactions and taxes that must be issued.
In the stock market the terms above can be considered as true, when a trader holds shares for a year, profits will increase by an average of 10% per year in the same period. However, the above does not apply to the forex market even though the stock market has an influence on the forex market movements.
2. Santa Claus Rally
Santa Claus Rally refers to rising stock prices in the last week of December. Santa Claus Rally is very close because of the combination of investors who bought shares in anticipation of the “January Effect” and the fund manager bought shares before closing the year for the purposes of “Window Dressing.
The thing that often happens is that traders start buying shares at Christmas time and sell them again in the “January Effect” period
3. January Effect
The January effect is a term that exists in the stock market, namely that stock prices rose in January. The thing that traders usually do is buy shares that have relatively low prices before January and sell them again after the price goes up.
The January Effect phenomenon occurs because individual investors are very sensitive to taxes and usually sell losers and small shares that are considered unfavorable at the end of the year. After that they will sell it again in January.
In the forex market the opposite occurs when the stock price index strengthens, meaning there is a tendency to take risks in stocks so that the exchange rate of the currency weakens.
The above has happened in the United States when the S & P 500 stock price index and the Dow Jones 30 index experienced a sharp strengthening, so this made the USD exchange rate weaken. So January effect often makes the stock index rise and the exchange rate becomes weak for a while.
Windows dressing is a term that refers to marketing tricks made by fund managers to improve their portfolio performance. The trick is to buy stocks that have good performance and prices are rising ahead of the announcement of the financial statements at the end of the quarter.
Every fund manager who does a windows dressing often sells stocks that have less satisfying performance and buys stocks that have good performance so that their portfolio is more promising.
Traders who enter the stock market when there is a window dressing should not hold it too long because of the temporary price spike.
5. Forex Market: Season Earnings
The term which further refers to the time when public companies listed in the stock exchange release financial statements and contain the income earned by the company. The release of financial statements usually occurs every quarter and this period occurs every January, April, July and October.
At times above market trends have a stronger tendency. If many public companies suffer losses, the stock price index will experience a bearish trend and vice versa, the tre will move up if many public companies record profits. In addition there are also predictions of analysts that are often announced along with the release of financial statements.
Also Read: Forex Trading Robots (EA), Profitable or Harmful?
6. Triple Witching
This last term refers to the end of the contract time for trading index futures, index options, and stock options. The triple witching period is Friday the third week in March, June, September and December.
In the days we mentioned above the trading volume and market movements of futures and options indices are usually very high. Especially in the last hours and close to the closing session and often called witching hour. Many daily traders take advantage of the opportunities and try to make a profit in a short time.
Although it has a trend pattern as we mentioned above, price movements in the seasonal period do not always move like that. Because there are other factors that influence it, such as previous sentiments and market conditions. Therefore we strongly recommend that all of you not to use the patterns mentioned above as the main consideration in trading.
That’s 6 seasonal terms that are often heard in the stock and forex markets. Hopefully the information that we have conveyed above can add knowledge to you all.
If you still have questions related to the above topic, do not hesitate to ask questions through the comments below. We will be happy to answer every question that comes in.