This week Dominic Picarda looks at what Autumn means for traders.
Autumn is called "fall" in America because it's the season when the trees shed their leaves. However, it's not just foliage that gets blustered around in this period: many financial markets also have a tendency to drop in September and October.
This volatility is nerve-wracking for many traditional investors, but can provide excellent opportunities for nimble spread bettors.
A History of Decline
September and October are most famous for hosting some of history's most terrifying blow-outs. Double-digit declines followed the near-collapse of a big hedge fund in September 1998, the attack on New York in 2001, and Lehman Brothers' bankruptcy last year. And the Wall Street Crash of 1929 and the Black Monday Crash of 1987 both took place in October.
Looking beyond such spectacular events, these two months do seem to have a special significance. Going as far back as 1820 in the UK stock market, October has produced the worst average returns of any month. And around one-third of major highs and lows in the FTSE 100 have occurred in these two months, twice the frequency we would expect if returns were simply random.
Applying Time Cycles
While it is useful to know that important turning-points and movements are more likely in September and October, you really need to narrow it down if you want to use it for trading.
One way of doing this is to look for specific time-cycle dates that arise in these months. This simply involves spotting highs and lows that have occurred at regular intervals in the recent past.
The accompanying chart shows the FTSE 100 index back in 2007. The arrows mark time-cycle turning-points at eight-week intervals. This pattern had been in evidence for several years, giving traders plenty of advance warning.
The fact that the FTSE rallied strongly into this period and was close to a multi-year high was a great clue that a short-selling opportunity was in the pipeline.
Until next week, happy trading
The Tradefair Spreads Team
The above comments do not constitute investment advice and neither Tradefair Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
Risk Warning:
Spread bets carry a high level of risk so you should only speculate with money you can afford to lose. You can lose more than your initial deposit and stake. Before you open an account, please ensure that spread betting matches your investment objectives, familiarise yourself with the risks involved and if necessary seek independent advice.
Article provided / approved by Tradefair Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.
Tradefair® is part of the Betfair Group.
'Trading and the Autumn' edited by DB, updated 05-Oct-09
Related Articles:
Trading and Strategy, updated 25-Nov-09
Only disciplined traders make money over time. The cornerstone of a disciplined approach to trading is having a proper strategy. There is no single formula for ...read article: Trading and Strategy.
Keeping Track of Your Trading, updated 06-Nov-09
Jotting down what you're planning to trade is a good way of holding yourself to account. If you have to jot down your logic, you're more likely to stop yourself from ...read article: Keeping Track of Your Trading.
Trading and Trends, updated 03-Nov-09
'The trend is your friend' is the first rule of trading. It is always much easier to make money when you are buying into an uptrend or selling into a downtrend. That said, though, you can still make profits by going against the ...read article: Trading and Trends.
Trading and the Autumn, updated 05-Oct-09
Autumn is called ''fall'' in America because it's the season when the trees shed their leaves. However, it's not just foliage that gets blustered around in this period: many financial markets also have a tendency to ...read article: Trading and the Autumn.
Trading and Stake Size, updated 10-Sep-09
Deciding how much of the funds in your spread-betting account to risk on each trade is an essential part of making worthwhile profits and limiting losses. This decision is ...read article: Trading and Stake Size.
Trading and Gapping, updated 28-Aug-09
When a market is rising or falling, it doesn't necessarily pay a visit to every single price-point along the way. Sometimes, a market will leap or plunge straight from one level to another, without...read article: Trading and Gapping.
A) Get free trading tips, offers, price updates, important news and more! All Free - Click here!
Risk Warning:
Please note that spread betting and CFD trading carry a high level of risk to your capital. You can lose more than your initial deposit. These products may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
* Tax law is subject to change or may differ if you pay tax in a jurisdiction other than the UK.
