Offering his "expert advice" on the seasonality of stock trading, Mark Twain has been quoted as saying that October is the most dangerous month to speculate on stocks. He quips that the others “are July, January, September, April, November, May, March, June, December, August, and February." This is a light-hearted way to look at the risks of trading stocks, which are ever present, but there is little doubt that the stock market is also affected by seasonal trends.
Seasonal stock market trends refer to the general upward or downward trends in the market during certain months of the year. Statisticians have long observed seasonal volatility changes at various times during the year. While some dismiss these observations as the fruit of mere coincidence, a careful study of market data will reveal obvious seasonal patterns.
While a seasonal trading strategy does not guarantee profits, its proponents argue that understanding market patterns will gives traders a definite advantage. Trading seasonal trends is much like card counting in blackjack. Many rounds must be consistently played to see the odds stack up in one’s favor. However, not being able to follow the patterns consistently is precisely the challenge that most traders who use seasonal trading strategies have.
It can be difficult to consistently follow the strategy year after year to benefit from the patterns, especially when trading individual stocks. The patterns are most likely then not played out in market indices and other stock pools.