The Optimal Month to Own Stocks

What Is The Optimal Month to Own Stocks?

ByOddmund Groette Seasonal trading strategies

The fourth quarter is a strong period for stocks. But which five-day period is best? We did a test to find out which calendar days of which month produce the best five-day returns.

The best five-day periods to own stocks are in late October, November, and December. The best days are the 27th of October and the 20th of November.

This is how we tested to find the best five-day periods of any month:

Key Findings Best Five-Day Periods

The test was done on the most followed stock index of the world: the S&P 500. We used the cash index of the S&P 500 (thus no dividend reinvestments). The test period is from 1960 until October 2021.

We did an optimization in Amibroker based on the calendar day and month. There is a max of 31 calendar days in a month and there are 12 months. This means we have 372 optimizations. Amibroker performs these simulations in less than 3 seconds on a decent computer.

Read here for how to optimize correctly:

We emphasize that a calendar day is not the same as a trading day. This is because a calendar day frequently is a non-trading day – either weekend or a holiday.

We used a five-day holding period. Why did we use five days? Because five trading days (normally) equal one trading week. Obviously, there is nothing stopping you from choosing other holding periods.

The test buys the close of the actual calendar day of the month. If the calendar day is 5 and the month is April, it means that we buy at the close on the 5th of April and we exit at the close five trading days later (we obviously need to exit on a trading day – not a calendar day). The results are overlapping, please keep that in mind.

What Is The Best Day And Month To Own Stocks?

The results are in:

The first column shows the calendar day when we enter at the close, the second column shows which month it is, and the third column shows the average gain per trade.

The best five-day period to own stocks is, not surprisingly, at the end of October, November, and December.

Here is the equity chart of buying on the 27th of October (if it’s a trading day) and selling five days later:

The second-best five day period to own stocks, which is buying the close of 20th of November, looks like this:

The outlier is 2008 which had a spectacular gain of 19%. This shows how sensitive the tests are. There are few observations.

Seasonalities matter – this is why:

Many readers might ask:

This is interesting, but how can it help me in my trading? Is it possible to make seasonal trading strategies?

We are not trading the above patterns ourselves, but we like to use seasonalities in our trading. We believe it’s one of the best tools there is. Many of the seasonalities are structural – a theme we’ll get back to later.

We end the article by recommending further reading:

Recommended reading:

The optimization was done in Amibroker. You can buy the Amibroker code plus a lot of Tradestation code for all our free trading strategies on this link:

Amibroker is a very powerful tool despite its cheap price. It works both for backtesting and live trading, especially with Interactive Brokers. How you can learn to code, do backtests, and live trading is described in our Amibroker course.

FAQ:

Which specific calendar days in late October, November, and December are identified as optimal for owning stocks?

The best five-day periods for owning stocks are on the 27th of October and the 20th of November, according to the test conducted on the S&P 500.

How was the test conducted to find the best five-day periods, and what index was used?

The test was conducted on the S&P 500, the world’s most followed stock index. It involved an optimization in Amibroker based on calendar days and months, spanning from 1960 to October 2021.

What tools were used for optimization and backtesting in the study?

Amibroker was used for optimization, recognized as a powerful tool for backtesting and live trading. Those interested can purchase the Amibroker code, along with Tradestation code for free trading strategies.

I’ve got an Msc from Heriot-Watt University, Edinburgh (1996), in addition a to a business administration degree the Norwegian School of Management (BI – 1994). Did my mandatory military service in between.

After university, I worked two years as an auditor (1996-1998).

I co-founded Aksjeforum.com in 1998/99 - one of the first websites about trading and investing in Norway. It was later acquired by Digi.no in 2001.

I have written 4 books about trading (in Norwegian). One of them has sold 30,000 copies, a record for a financial book in Norway.

From 2001 until 2018 full-time independent prop trader (Series 7 in 2001) and investor.

2018-today: Investor, writer, analyst.

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