What’s the Best Time to Invest?
Using Seasonal Trends to Your Advantage
I wanted to do something different and write an educational piece on some general rules that hold true in the financial markets. Knowing this data alone can help the average person, let alone active trader, benefit from seasonal trends in equities and crypto.
Let’s jump right in…
What Are the Best Months for Stocks and Bitcoin?
Traditional wisdom says ‘“sell in May and go away”. While that’s roughly accurate, let’s hold the theory under a microscope for a closer examination. This summary represents average monthly performance taken from the past 50 years of data.
- Best month for Bitcoin: November
- Worst month for Bitcoin: September
- Best month for S&P500: April or November
- Worst month for S&P500: September
How about the best days of the week to buy stocks and Bitcoin?
- Best day for Bitcoin: Sunday
- Best day for stocks: Monday
Where’s the Proof?
Seasonax has charts going back to 1950 for the S&P500, so I tried several different starting points and eventually settled on a 50-year range. While scanning through, I looked for consistencies in the data or anything that might sway my overall conclusions.
To my delight, timeframe selection didn’t have any major impact on the end result. With great consistency, Monday has been the worst day of the week for the S&P 500 Index, which represents around 80% of the total value of the U.S. stock market. This means Monday is the best day to look for dips in shares of companies you’re looking to acquire. Tuesday and Wednesday are good days to sell stocks, and it’s best to reduce exposure by Friday at the latest.
Furthermore, April and November come out as the clear winners in terms of average monthly returns for S&P500 with December following closely behind. September is by far the worst month for the S&P500 on average, while August tends to be particularly slow as well.
Now on to Bitcoin! I have to say, this one is a bit trickier, and I am hesitant to make any big assumptions about it because of one simple thing: lack of data. While Bitcoin has been publicly trading for 12 years, that’s a mere drop in the bucket compared to legacy markets.
But Jay, you just said November is the best month and September is the worst for Bitcoin!
I did indeed. However, recent years have been drifting away from the averages. Three out of the last four Novembers have been red months, for example. All four Septembers have come out red though, true to form. This proves that regime filtering (bullish vs. bearish macro trend) should always be used when considering investments.
In bull markets, seasonal performance tendencies can prove absolutely deadly for nailing the market turns. The time to learn this is during the bear market, so you can work out an investment plan for the next bull. Trust me…once you realize this, you’ll possess the kind of alpha to which a select few are privy.
What’s the Best Month to Buy Bitcoin?
Taking all the above into consideration, I believe it’s fair to say September has proven to be the best month to accumulate Bitcoin during bull markets, and November-December has typically been a good period to take profits. That’s also based on the fact that 9 out of 13 Januarys have been red.
Here’s the proof.
What’s the Best Day to Buy Bitcoin?
Monday has the greatest average % return by far over the past 10 years. There are a few theories as to why that’s the case. I think it’s rather simple, however. It has to do with what happens on Sunday…
In almost every sample size, Sunday ends up being the worst day for Bitcoin. This could be due to a number of factors, but one of the most obvious reasons is that traders often take long bets during the weekend while legacy markets are closed. During that period, there’s less risk of outside markets creating volatility in the price of Bitcoin. Then, once stock market futures open later on Sunday, it’s typical to see a selloff on BTC. The evidence is in the data, as Saturday is typically the second-best day in terms of % gains for BTC.
While I don’t normally advocate for trading on the weekends, Sunday can be a good time to scoop up some discounted Bitcoin if the overall trend is up. When the daily, weekly, and monthly charts all look good, dips are the best opportunities to buy. If these chats are in downtrends, however, it’s a lot riskier to buy Bitcoin and crypto in general.
Will This Data be Reliable in the Future?
I could be snarky and say nobody knows for sure. Instead, I’ll simply say that in my 10+ years tracking the markets, I’ve seen seasonality effects play out as surely as I’ve seen the sun come up in the morning. The proof is in the pudding…or the charts in this case.
The reliability of S&P500 seasonality across multiple testing periods should excite anyone who has ever done any self-directed investing or trading. It’s also incredibly valuable for crypto traders, since the correlation between stocks and crypto is often high when the markets are trending.
These averages should be taken in context of the general market regime as well as local trends. I believe that over time, Bitcoin’s seasonality chart may more closely mirror that of the S&P500, but we’ll have to wait a while to find out. There are a lot of potential roadblocks to the long-term success of BTC, so I avoid making any broad projections in that regard.
Tell Me More About Seasonal Market Trends!
Well, there are several market sectors that tend to perform extremely well at certain times of the year. One of my personal favourites is mining. Particularly gold, silver and uranium miners. These assets are extremely volatile thanks to the the cyclical nature of the business and operating conditions.
The best time to buy gold and silver miners is historically December, and for uranium miners it’s October-November. Following that, the lithium cycle typically bottoms in March, and its season of strength kicks off in May-June. But don’t just listen to me. Here’s the charts to prove it.
There are others such as lumber, which typically bottoms in January and October. These can be great months to consider positions in building materials stocks.
Or even consumer staples for more defensive investors looking to maximize gains with minimal volatility. Consumer staples include food, household and personal products. The best time to position in companies that deliver these items is during the late Jan to early Feb lull in the business cycle. This is the awkward transition period where retailers slow down following the holiday rush.
The Bottom Line
Seasonality charts can allow average investors and traders to take advantage of periods where outsized gains can be made in particular sectors. This applies to both equities and crypto. It’s worth studying these charts and keeping them on file so you can shift strategies throughout the year. It’s also rewarding as you’ll be able to mix it up and trade different assets and study their movements. Keep this strategy in your back pocket at all times and you’ll be a deadly market assassin.
Also if you’d like direct access to myself and several other market analysts and Twitter legends, grab a free trial at The Birb Nest. You’ll get access to our private Discord channel where we discuss strategies and post trade calls throughout the week. What a great way to kick off a new year!
Jay Charles
Editor in Chief, The Trading Tank.
See Also:
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