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Tharp's Thoughts
Weekly Newsletter
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Feature: It’s Scary How Well the Halloween Indicator Keeps Working
by D. R. Barton, Jr.
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Workshops: Forex Discounts End Next Wednesday!
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Tips: Transitioning Into a Swing Trade
by Gabriel Grammatidis
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Don't miss out on the $700 EARLY BIRD DISCOUNT!
ENDS NEXT WEDNESDAY!
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It’s Scary How Well the Halloween Indicator Keeps Working
by D. R. Barton, Jr.
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Every few years, I like to check how some of the seasonal indicators are working. Since Halloween is just around the corner, let’s take a look at how the Halloween Indicator is doing.
For more than a decade I’ve written columns for Van’s Tharp’s Thoughts newsletter. My favorite research continues to go into the old Wall Street sayings with seasonal bits of advice to investors. So before we jump into the scary-good Halloween Indicator, here is a sampling of seasonal pieces of advice that I have confirmed or busted in past articles:
The January Effect claims that small cap stocks outperform large cap stocks during the month of January.
Findings — It worked well through the 1980s and still has a slight edge. Since the 1987 crash, however, a significant edge comes now by moving the period back to the last two weeks of December. We should probably rename it “The Last Half of December Effect…”
The First Five Days claims that the direction of the first five days of January provides a useful indicator for stock performance for the rest of the year.
Findings — We busted this one. Since there’s no requirement for the size of a move, even a one penny improvement at the start of January would supposedly tell us what the rest of the year will do. If we add a filter that requires the move to be more than just random noise, the whole analysis falls apart. Ignore this adage.
The January Barometer: Claims that as January goes, so goes the rest of the year.
Findings — We busted this indicator too. The January Barometer did work decades ago but since 2000, this indicator has produced a loss of 8.5%.
Sell ‘em on Rosh Hashanah and buy ‘em on Yom Kippur: Rosh Hashanah is the Jewish New Year, and Yom Kippur is a Hebrew holy day known as the Day of Atonement, which happens a week after Rosh Hashanah — on varying dates in September and October.
Findings — Continues to work remarkably well. Multiple studies including one peer reviewed academic paper show a statistically significant down period for stocks during this short timeframe in the fall.
That brings us to the Halloween Indicator.
Normally at this time of year, the only madness that I have to put up with is an incomprehensible number of those Halloween costume shops that open up for six weeks in every vacant storefront. They apparently do quite well because in my neck of the woods, they’re stinkin’ everywhere.
But the last few years, a different and more annoying trend has gotten out of control about which I have written previously. If I see one more pumpkin flavored anything, I’m going to scream…
I get flavor fads. They inject new sales life into lethargic coffee and bagel sales. But now they are putting the flavor of pumpkin in beer. Every beer. I went to buy some beer as a gift for a friend this morning and I had to walk halfway to the back of the store just to find a beer that was not gourd-infused. Beer is only the latest addition to the list - there is pumpkin flavored everything: Peeps, waffles, M&M’s(!), ice cream and Oreos. Nestlé’s even has pumpkin chips (instead of chocolate chips) so you can make your own pumpkin flavored abomination in the comfort of your home. This seasonal picture sums up everything nicely:
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Yet my screams will fall on deaf ears. Pumpkin stuff sells — and so it will persist.
There are lots of pumpkin-flavored spoofs out there, too. I’ve seen pictures of pumpkin flavored KFC, Chipotle burritos, even Remington buckshot! (Please email me at drbarton “at” vantharp.com, the most outrageous pumpkin flavored something that you’ve seen and I’ll include the best ones in an upcoming article.)
Now onto something from Halloween that is actually useful…
The Halloween Indicator: It Just Plain Works
Many times, old Wall Street bromides fail to stand up to scrutiny — but there’s one that has actually proven itself useful time and again, “Sell in May and go away…”. Selling in May and buying back at Halloween (the end of October) is the strategy behind “The Best Six Months” seasonal tendency — which many know as the “Halloween Indicator”.
My personal preference for this has been backed up by two peer reviewed papers which show how well this seasonal tendency works — going back centuries. Bouman and Jacobsen published a paper in 2001 in the American Economic Review that showed how the November to April time frame outperformed the May to October period by a statistically significant amount. Here is their conclusion:
“Surprisingly, we find this inherited wisdom to be true in 36 of the 37 developed and emerging markets studied in our sample. The ‘Sell in May’ effect tends to be particularly strong in European countries and is robust over time. Sample evidence, for instance, shows that in the UK the effect has been noticeable since 1694.”
The following two charts show the striking outperformance across developed countries:
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And this one shows similarly impressive results in the emerging markets:
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But the support for this great seasonal tendency doesn’t stop there. Jacobsen and Zhang published an impressive and far-reaching academic paper published in October of 2014. The authors expanded Jacobsen’s work from 2001 and updated the data. They found that the “Best Six Months” had statistically significant outperformance in all 108 out of 109 active stock markets in the world! (The lone exception? An island country in the middle of the Indian Ocean called Mauritius.) Here’s their chart that shows the vast outperformance for the “Best Six Months” vs. buy and hold:
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That outperformance is stunning but the research shows the outperformance of the six best months vs six worst has grown stronger during the most recent decades. The graph below shows the size of the Halloween effect (the difference between 6-month returns November-April and May-October) for 31 ten-year sub-periods from 109 pooled countries over the period 1693-2011:
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Most of the seasonal effects mentioned above show dwindling effectiveness as more people find out about them and try to exploit them earlier, etc. But that’s just not the case for the Halloween Effect! Like a fine wine, it seems to be getting better with age…
Some pundits have written, with a shorter-term data set, that the Six Best Months has worked over the past few years, but note that the period between May and October has also been strong. I’ve crunched new numbers for you and despite one of the strongest and longest bull markets of this century (since March of 2009), the Halloween indicator still holds true. The Six Worst Months vastly underperformed in the following years (all numbers as percentages):
- 2010 (-0.3 vs. +15.2)
- 2011 (-8.1 vs. +11.5)
- 2012 (+1.0 vs. +13.1)
- 2016 (+2.9 vs. +12.1)
(4 out of 8 years in a strong bull market – dang this thing’s good!).
Here’s what that looks like on a chart (a bit busy to be comprehensive):
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You can see how many times the red arrows are down or sideways vs. how many times the green arrows go down (only once, and for only -0.7%).
In addition, even though the April 2009 — October 2009 period was exceptionally strong (+30.2%), the average for all the six month periods shows a 57% outperformance for the Six Best Months which averaged 8.3% during the current bull market vs. +5.3% average return for the Six Worst Months.
It’s a seasonal trend that just keeps on working.
I always love to hear your thoughts and feedback — just send an email to drbarton “at” vantharp.com.
Great Trading,
D. R.
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About the Author: A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena. He is a regularly featured analyst on Fox Business' Varney & Co. TV show (catch him most Thursdays between 12:30 and 12:45), on Bloomberg Radio Taking Stock and MarketWatch's Money Life Show. He is also a frequent guest analyst on CNBC's Closing Bell, WTOP News Radio in Washington, D.C., and has been a guest on China Central Television - America and Canada's Business News Network. His articles have appeared on SmartMoney.com MarketWatch.com and Financial Advisor magazine. You may contact D.R. at "drbarton" at
"vantharp.com".
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Forex has evolved into a market in which individual investors can trade efficiently.
Early enrollment discount expires next Wednesday on our Forex courses in November!
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Presented by Gabriel Grammatidis
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November 10-12
Friday-Sunday
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Presented by Gabriel Grammatidis
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November 13-14
Monday-Tuesday
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Get a look at what it's like to attend a Forex Workshop in the video below.
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Learn to Trade Three Forex Trading Systems with an Edge
Gabriel will be teaching three robust Forex systems based on trend-following. Each system is based on similar “ingredients,” but each has a different recipe to capture a different part of the trend. Consequently, the systems are complementary to each other and together offer several trading setups nearly every day of the year.
Gabriel will spend most of the workshop teaching his trend-following systems. The first half day is spent to go over the specifics of trading the Forex market and cover such topics as:
- Why trade Forex?
- What are the advantages and drawbacks of trading Forex versus other instruments?
- What are the main market characteristics, and who are the Forex market participants?
- What methods work best in the Forex market?
- All you need to know about Forex trading sessions and the currency pairs.
- How are Forex chart characteristics different than stocks or futures?
- What do you look for in a Forex broker? What do you avoid?
- Why Forex may actually be the best market for new traders to learn trading.
- What are the trading edges that work in Forex?
Join us for this three-day workshop and leave prepared to trade the systems right away. Plus, join us for 2 days of live Forex trading so you can trade the systems live for even more hands on experience!
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NEW BONUS OFFER. For the first time Gabriel is extending a combo discount on the workshop and live trading. Attend both for an additional $500 discount on live trading.
Special price offers:
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Start your study early. Order the Forex Home Study Course now and walk through the door with a thorough understanding of the Busted Breakout (System 1). Home study buyers get $600 off the price of the live workshop!
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Combo discount: We have never before offered a combo discount on the live portion of the Forex training. But now, for a limited time, when you register for both November events you'll get an extra $500 off on live trading. Learn More...
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Transitioning Into a Swing Trade
by Gabriel Grammatidis
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The video below very nicely shows how 2 systems (here S2 and S1) can come together at the same time as the currency pair at different timeframes.
It also shows how the 200SMA can play the role of resistance protecting the stop and, in a higher timeframe, how it can act as a magnet towards reaching the trade target.
This trade really developed and at some point in time the decision was taken to transition it into a Swing Trade with the result of trailing the stop in higher timeframes.
Watch this 7 minute video from Gabriel that shows
how this trade transitioned into a Swing trade.
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About the Author: Gabriel Grammatidis is a successful full-time trader and graduate of the Super Trader program. He has extensive experience trading Forex and shares his knowledge at his Forex and Live Forex Trading workshops, held regularly at VTI.
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January 19-21
Friday-Sunday
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Van shares years of knowledge about wealth concepts, wealth creation modeling, being wealthy inside, and the infinite wealth processes. Attend this workshop and completely reshape your attitudes toward money, work, paychecks, income, wealth, scarcity, and abundance. Your paradigm shifts in just three days will amaze you and release you from your current beliefs about wealth that have been running in your unconscious and holding you back.
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Presented by Libby Adams and RJ HIxson
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January 23-26
Tuesday-Friday
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Immense success is possible for most traders and investors. But the secret to that success has little to do with some magical trading system. Instead, it has everything to do with you. You are the secret ingredient to your success. And when you transform yourself, you transform everything. Peak Performance 202 is a major leap forward for those of you who are willing to step out of your comfort zone.
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Presented by Van Tharp
with co-presenter RJ Hixson
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February 17-19
Saturday-Monday
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Peak Performance 101 is Dr. Tharp's core psychological workshop, and his most transformative course for over 25 years. If you want to know how great traders think, behave and act so you can achieve consistent and profitable results, without stress, then this workshop is for you.
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Presented by Van Tharp
and RJ Hixson
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February 21-23
Wednesday-Friday
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In just three days you’ll see how all of Van Tharp ’s strategic trading concepts fit into one seamless design for more predictable trading results. Your trading will never be the same.
This course illustrates the relationships among the steps so that the process is logical and reasonable. Moreover, you will learn how to take each step experientially, so you really get it. Dr. Tharp is an expert in delivering elicitation questions to bring forth each person’s most important issues.
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March 2018 - Sydney, Australia
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Presented by Van Tharp
with co-presenter RJ Hixson
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Presented by RJ Hixson
and Van Tharp
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March 13-15
Tuesday-Thursday
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March 23-25
Friday-Sunday
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Futures Trading Workshop
Presented by Gabriel Grammatidis
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April 21-23
Saturday-Monday
Registration will open soon. Do not book any travel at this time.
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Futures Live Trading
Presented by Gabriel Grammatidis
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April 24-25
Tuesday- Wednesday
Registration will open soon. Do not book any travel at this time.
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April 27-29
Friday-Sunday
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Presented by Van Tharp
with co-presenter RJ Hixson
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Presented by Van Tharp
and RJ Hixson
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May 22-24
Tuesday-Thursday
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NEW E-learning Course!
Forex Trading Systems: The Busted Breakout System
Click on the image below to watch a brief 1 minute video that hightlights this new course.
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Gabriel developed and refined his Busted Breakout system on the concept of trend-following while he was still enrolled in the Super Trader program.
The system has a high win rate (about 65%) and it takes advantage of a price pattern that happens again and again in the charts — breakout failures. The main advantage of this is that it benefits from running for other peoples’ stops. This is a unique edge of the system making the trade break-even early on. Watching 15-minute charts for 4-6 hours a day and trading only the biggest, most liquid currency pairs, the system finds easily more than 150 trades per year. The pattern works equally well on 5min, 60min and 240min charts so the trade opportunity per year can be much higher depending how you trade. Gabriel is confident that someone with the programming skills could turn the system into a well-performing automated trading system.
The three-day workshop cost is $3,995 but the cost of the home study program is $1,295. As a special introduction price for early responders you can get this new home study for just $995.
Plus, buy the home study now and if you decide to join us at the 3-day Forex Trading workshop in November (or for any Forex workshop in the future), you can deduct $600 off of your course payment for the workshop.
This is win-win for all! If you are among the group of clients who simply cannot come to one of our workshops this home study offers you the benefit of still gaining access to a robust and premium forex trading system. Gabriel has traded it himself in several timeframes for many years now offering a persistent edge in the market.
But, if you have already been considering attending the workshop this is a great way for you to get a full-steam head-start and walk through the workshop door already understanding the system well. You will then have the opportunity to ask Gabriel anything you need. And in addition, learn two new Forex trading systems. The three systems taught in the workshop all offer unique advantages. They complement each other giving you the opportunity to reap various stages in a trend.
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FREE Book!
We pay for the book, you just pay for shipping.
Read Van’s Latest Book —
TRADING BEYOND THE MATRIX
The Red Pill for Traders and Investors
Eleven traders tell their stories about transforming
their trading results and lives, in this 400 plus page book.
Below is a brief video on how powerful this book is to traders.
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Cary, NC Workshop Information
For a list of nearby hotels for our Cary, North Carolina locations,
click here.
Book your flight arriving to the Raleigh-Durham International Airport (RDU).
When traveling to a three-day course, it's best to arrive the evening before.
To help determine your arrival and departure times, see:
Questions? Click Here to Ask Van...
CONTACT US
This is a supplement to our subscription based newsletter, Tharp's Thoughts.
800-385-4486 * 919-466-0043 * Fax 919-466-0408
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