The stock market is inherently unpredictable and makes investors look for a pattern, hence causing confusion in their thoughts. Holiday season, supposedly, one of the most unique yet less considered seasonal trends occurs around Thanksgiving. It is just how stocks perform can give a trader an edge for trading strategies.
As rich historical data are delivered, the performance trend surrounding Thanksgiving may be analyzed and strategies based on this information are developed. Using such insights in the process, investor decisions can be made according to seasonal behaviors in the market.
In the following text, we will explore three successful trading strategies on Thanksgiving that have been going great since the year 1960. We will look at the trading rules, their history, and what makes them tick so you can make better decisions on this holiday weekend. Let’s start it off!
1. Thanksgiving Day Trade: Buy and Hold for 24 Hours
Overview
The first strategy capitalizes on short-term holiday gains that come in the days leading into Thanksgiving. This type of strategy is index-based on the S&P 500 and takes advantage of the positive tones within the market at the time.
Rules
- Long: S&P 500 the Tuesday before Thanksgiving.
- Short: day before Thanksgiving.
Results
This strategy has been remarkably consistent since 1960, with an average gain of 3% and a win rate of 76.6%. Of course the gains are approximately eight times better than holding positions on random days, so this strategy really works. Holding the position until the close of Black Friday yields an average gain of 0.51%, but overall performance has declined significantly over the past decade.
- The Strategy of Thanksgiving to Black Friday
Overview
For traders who would like to push the trading window a bit, the Thanksgiving to Black Friday Strategy capitalizes on the extremely positive market atmosphere that typically persists until Thanksgiving.
Trading Rules
Buy: S&P 500 on the Tuesday before Thanksgiving
Sell: At the end of Black Friday; that is, the day after Thanksgiving.
Performance
Holding through to Black Friday has yielded an average return of 0.51%. Yet, this approach has really experienced very muted returns in the recent past which suggests that even though the holiday spirit is alive and well, market behavior may not be as predictable as it has in years’ past.
3. Thanksgiving to New Year Strategy
Overview
The final strategy is a longer-term strategy, holding positions from the Thanksgiving holiday into the end of the year. This strategy combines the positives that occur during the Christmas season and “Turn of the Month” effect while taking advantage of historical performance patterns.
Trading Rules
- Buy: S&P 500 at the close of the Monday before Thanksgiving
- Sell: At the close on the third trading day of the New Year
Performance
This has proven a good strategy historically, with an average return of 2.68%. The idea is that holding a position the longer the better should see one catch the usual upwards move in stocks during the Christmas holidays and the positive momentum as the calendar turns over into the New Year. Of course, this is a successful strategy, but it too has evidenced weakening returns more recently.
Seasonal Factors
Christmas Rally
Stocks have traditionally performed during Christmas. This is more often because of the surge in consumer spending, with more optimism at this time. Investors are able to obtain maximum gain because of making trade through this trend.
Turn of the Month
The Turn of the Month is a trend where month-end and the beginning of the next month have a tendency to add positive prices in the stocks. A part of this phenomenon is initiated by month-end institutional buying as well as cash inflows. Coupled with the Thanksgiving trading period, this helps in bettering the overall return.
Conclusion
With these strategies on Thanksgiving in this article, one gets insight into how stocks tend to perform in relation to the holidays. From a shorter-term trade to keeping it long-term, most of these strategies have performed well since 1960.
As we have noted, each strategy has different strengths and considerations. While inducements to historical performance should not be overlooked, traders have to remain vigilant and focus on current market conditions. By building seasonal insight into your trading plan, you’ll be in a better position to make profits during the Thanksgiving holiday.
Stay tuned for the next video in which I will be discussing all the synergistic effects of Christmas season combined with Turn of the Month strategy. Don’t forget to like and subscribe for more trading strategies and insights!