The term “Halloween” always comes with “tricks or treats” in general. In the stock market, based on investor’s behavior the Halloween indicator formed. Sometimes, it refers to the “Sell in May and Go Away” strategy. According to the analysis of Bouman and Jacobsen in 2002, the Halloween indicator effect is strongest in Europe since the 17th century and the effect has appeared in most countries. Before going into depth, let’s have a look at the definition of the Halloween Indicator.
What is the Halloween Indicator or Sell in May and Go Away Indicator
Though the factors behind the “sell in May and go away,” strategy is still not quite clear, investors’ sentiment plays a significant role in it. November is the Halloween month for everyone in the world. In the stock market also Halloween cycle begins in November and ends in May. Traders believe that the price action is generally high in May. According to research, investors’ sentiment works best in the period of November to May. After May the price generally declines to some extent. Therefore, it is advisable to buy shares in Nov and sell them in May as per the strategy.
Halloween Indicator Data
Let’s have a look at the collected data of the “sell in May” strategy. In order to clear the strategy’s effect, I have attached an image below.
This is the overall collected data based on the strategy. According to the information, foreign flows into India have been much higher during the period of Nov to April in comparison to May to Oct. This strategy was seen in the last 9 to 10 years. As per the data, India stands at Rs. 22,306 cr. in comparison with an outflow of Rs. 4,618 Crores during the months of May to Oct in the year 2017.
AmiBroker Code for the Halloween Indicator
A ready-to-use Amibroker AFL code for the Halloween Indicator on Sell in May and Go Away follows. To backtest the sell in May and go away system, enter the formula within the AFL Editor, then press “Backtest.” You can even wish to restrict the analysis to a watchlist which includes simply your choice of symbols with the use of the “filter” environment within the analysis window.
FAQ on Sell in May and Go Away
The Sell in May and Go Away (SMaGa) Strategy entails selling stocks at the end of April-May and then slowly buying back during November-December, when markets tend to rally due to festive season demand.
The Sell in May Effect means that investors experience a downturn or negative returns while investing between mid-May to mid-September. This is particularly due to lower investor sentiment during the summer vacation period when many domestic investors travel out of cities for holidays thus leaving fewer buyers present than usual which affects stock prices negatively.
Hang on till July. It’s an extension of the famous SMaGa Strategy coined by a few Investors to maximize profits. Even after mid-May decisions taken by Many professional traders/money managers who Jump ship near the start or Mid may point out that premature exits will not benefit them significantly beyond mid may give the volatility & nature of Indian Stock.
Generally, we can see high returns opportunities during late spring/early summer (April – June) so these months offer good chances for higher income. Similarly, November – December witnesses peak profits usually associated with pre & post-Diwali shopping spirit which drives up demand too! But before deciding on any particular frame it’s vital you assess performance history data thoroughly against the most recent current trends otherwise you might end up losing more capital than gaining!
We have understood that historically the stock market underperforms between May and October. Hence, if traders sell their holdings in the month of May and buy them back in October and November just after Halloween, they will make a gain. Hence this “sell in May and go away” phenomenon is named after Halloween.