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:
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:
- Why use seasonalities and seasonality in trading (Seasonal examples of trading strategies)
- The Friday jobs report trading strategy for stocks (and bonds)
- How to use the weekday effect in trading (Does the day of the week make a difference?)
- Even Vs. odd days trading strategy (S&P 500)
- Last trading day of the month trading strategy (the last day of the month effect/seasonality)
- The options expiration week effect (options week anomaly and seasonality trading strategy)
- Trading the week after options expiration day
- Trading the holiday effect in stock markets (anomaly and seasonality)
- The turn of the month trading strategy (end of month effect)
- First trading day of the month trading strategy (first day of the month effect)
- The end of the year rally in stocks (S&P 500 Santa Claus rally/effect)
- What is the worst month of the year for stocks? It’s September
- Retail stock market seasonality trading strategy
- The Russell 2000 rebalancing strategy (end of June Rally/Effect)
- Sell in May and go away – OBX (Oslo Stock Exchange)
- Day of week seasonality in the S&P 500
- Sell in May and go away – myth or fact – the S&P 500 (trading seasonality)
- The first day of month seasonality in the S&P 500 (Trading the first day of the month)
- The average gain per trading day and day of the week since 1970 in the S&P 500
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.