Last Updated on December 27, 2020 by Oddmund Groette
On page 279-280 in The Education of a Speculator, Victor Niederhoffer explains his version of the January effect: The gain in January determines the average gain the next 11 months.
Does this hypothesis still hold? It does:
If the S&P 500 decline in January, the average percentage change for the next eleven months is 2.25%. If the S&P 500 rises during January, the average percentage change in the next 11 months is 10.4%.
The chart below is 100 000 compounded when January showed a decline (entry is on the open of the first trading day of February, and the exit is on the open of the first trading day in January of the next year):
The first real drawdown happened in 1974, and the strategy never really recovered after that. The decade long bull market of 2010-2020 made the strategy recover somewhat.
When January is positive, the equity curve looks like this:
Quite a difference, to put it mildly. When January is up, the win ratio is 83%. When January is down, the win ratio drops to 62%. The reason why this strategy seems to work is because of the occasionally large losers when January is down. For example, it happened in 1974 and 2008, two years which went on to fall substantially the rest of the year.
The code in Amibroker can for example look like this:
Buy= Month()==2 AND TimeFrameGetPrice(“C”,inMonthly,-2) < TimeFrameGetPrice(“C”,inMonthly,-1);
Sell= Month()==1 AND Month()!=Ref(Month(),-1);
For more trading strategies, please have a look at this page:
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