Pre-holiday effect in financial markets

Holidays have a special effect on financial markets. Over the past 100 years, exchanges in the west have been closed for nine different holidays throughout the year. (For a more effective demonstration of the pre-holiday effect, we use the American market and holidays, since there are much more trades there.) History shows that stock prices behave in a certain way for 2 (sometimes more) days before the holidays . Long-term investors and short-term traders can use these price behaviors for their own profit.

The general pre-holiday shopping rule is buy a few days before the holiday . Short-term traders usually sell the tool immediately after the holiday (within a week), and long-term investors usually wait for the end of the year. Regardless of which approach you prefer – fleeting profit or long-term investment – both strategies have proven to bring good results.

The essence of the pre-holiday effect

The essence of the pre-holiday effect is that traders sell shares before the holidays on two reasons:

  1. get your capital to make purchases before the holiday
  2. get rid of the risk : while the market is closed, something may not happen in favor of traders

the offer increases, the price falls and it’s a good time to use this simple pre-holiday effect .

This table shows the results of the described trading strategy. (Results are based on the S & P 500 index from 1928 to 1975.)

Holiday Purchase for 2 days Purchase for 1 day
New Year 31.1% 19.6%
The Passionate Friday 7.3% 17.8%
Presidents’ Day (end of February) -0.1% 12.2%
Memorial Day (end of May) -4.7% 22.8 The day of independence (July 4) 13.3% 37.3%
Labor Day (beginning of September) 16.8% 33.7%
Elections (early November) 17.9% 4.6%
Thanksgiving Day (end of November) 4.3% 1.1%
Christmas (December 25) -7.1% 15.2%

(For all holidays, selling and the security took place at the end of the year.)

For a good example, if you invested 10,000 in January 1928 and sold in December 1978, you would have had a profit of 41,441. But if you invested 2000 before the holidays during these years, every year, and sold at the end of each year, then your final capital would be 30 times larger and would be 1440716!

Quick profit

Short-term investments will give a good result when choosing this strategy trade; To do this, you just have to sell the shares after the holiday for a week.

The graph clearly shows that Google shares could be profitable to buy on June 29 (on the eve of independence) at 523 and sell on July 5 to 541.

The growth would have been 3.44%. Of course, the profit would have been weighty only with serious investments from the absolute point of view. If you invest 100,000, you could earn more than 3000 in a few days.

The following example shows the relative growth of shares in Microsoft corporations and US Bancorp.

In both cases, the day of independence and sale after the holiday brought a good profit .

And here is another example of the New Year’s effect on the shares. Companies Yahoo and Baidu operate in the field of Internet services; see what profit can be obtained by using the pre-holiday effect correctly .

Long-term investment

In addition to extracting quick profits, Pre-holiday days can be used as places for long-term market entry . The chart clearly shows that before Easter there was a very favorable time for entering the market and buying Microsoft shares.

As a rule, accumulate good capital and take off your profit with an impressive percentage.

It is important to remember that there is always a risk that stocks will not behave as you expect, so you need to do at least a basic technical or fundamental analysis of the instrument of interest to you .

Use the strategy Pre-holiday Effe t wisely, and exchange your reward. Buy before the holidays, and sell immediately after the holiday or at the end of the year.