Everything about the “Halloween effect” in investing and trading

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The time to bypass Bitcoin might have ended in the next few months, and it could start with the month of October and something called “The Halloween Effect”. The Halloween effect is not like the spooky quadruple witches that occur when quarterly contracts expire, but can have a serious impact on the markets.

The Halloween effect is based on the idea behind the seasonality and cyclicality of markets, and is essentially the opposite of the phrase “sell in May and go”. The latter refers to how investors and traders distracted by the good weather and the holidays can cause the markets to stagnate or even a downtrend.

But what exactly happens when the Halloween effect appears? And how could this impact the crypto, the stock market, and other global markets of macroeconomic importance?

Sell ​​in May and go against the Halloween effect

To properly explain the Halloween effect, let’s first look at the definition of the old financial world adage “sell in May and go.” According to Investopedia, the popular phrase is “based on the historical underperformance of certain stocks during the six-month” summer “period starting in May and ending in October, compared to the six-month” winter “period. from November to April. “

“Some investors find this strategy more rewarding than staying in the stock markets throughout the year. They subscribe to the belief that as warmer weather sets in, low volumes and a lack of market participants (presumably on vacation) can make it a bit riskier, or at least a dull market period, ”the definition continues.

Over the past 70 years or so, the Dow Jones Industrial Average has recorded less than 1% average gain from May to October, while performance after October through April has averaged over 7%.

Holidays or a lax state of mind might not be the only reason for seasonal changes. The positive phase tends to come to an end, just as the tax season deadline approaches. Could traders and investors suddenly be more worried about their bottom line? Now is the time to reallocate assets and capital? How about a mix of all of the above?

Will traders get a turn or treatment in the fourth quarter?

Having said that, you can understand why the Halloween effect is happening. The name mostly comes from the holidays the month ends with, which tends to have a creepy and ominous tone. The Halloween effect is not a trap, however, and if it stays true to its positive trend, traders and investors are going to be in for a treat this year.

The stock market is struggling right now due to the situation with Evergrande, but things could change at any time. The stock market is in a bubble according to most major economists and investors, but irrational markets can stay that way much longer than expected.

The lack of interest rate changes and the abundance of stimulus funds have kept asset prices afloat. But the stock market cycle could be over for a while.

Why Bitcoin’s bull cycle could end around Christmas

If the stock market is struggling, there is still hope for Bitcoin and cryptocurrencies. These assets have not yet completed their final market cycle, and a stagnant stock market or sell-off could lead to an influx of capital into crypto and trigger the biggest fourth quarter the asset class has ever seen.

Bitcoin bull markets also historically end in December every four years based on each halving cycle. Bitcoin is now entering what is expected to be a very profitable October, after the bloodiest second quarter on record and only a meager recovery in the third quarter. The fourth quarter will have to prove that the asset class deserves the attention of institutions.

If institutions now choose to pile up, it could cause a wave of FOMO and Bitcoin madness like never before. Sentiment around the peak should be similar to what investors and traders saw during the height of the dot-com bubble.

When will the bubble burst in finance?

When the bubble bursts in the stock market and the current crypto cycle comes to an end, it may finally be time for metals to prove that they still have a place as a monetary standard.

A potential bubble burst in December for Bitcoin is very possible, because as history has shown, the cryptocurrency only peaked in the last month of the year. Legendary traders like WD Gann have used astrology and planetary cycles to predict highs and lows in commodity markets, which also peaked in December.

Thinking back to the dot-com bubble, however, the peak was actually in March 2000, or just before the time of the “May sell-off”. When the stock market finally started to recover, it was October 2022. Still can’t believe the impact of these seasonal changes on investor sentiment?

Build a portfolio to protect against economic upheavals

Clearly, the entire macroeconomic landscape is at a pivotal point, where some markets will experience the Halloween effect and strong performance in Q4, while other markets will fall into a downtrend and wait their turn for capital. ebb because all markets are cyclical.

It is not known what could happen given the current economic health, political tensions and a world weakened by a pandemic. Those last days before the bubble ends are key to getting all the profits you can to protect yourself from any economic storm to come after the dust settles on the collapse.

Even Bitcoin and other cryptocurrencies could struggle in the years to come, once again allowing assets with a deeper history like precious metals to shine. To prepare for everything to come, you need a platform that provides access to all of these global markets from one account.

PrimeXBT is an award winning margin trading platform with long and short positions in Forex, Crypto, Stock Indices, Commodities, Metals, and more, all under one roof. Using the advanced command types, built-in technical analysis software, and other professional tools, anyone can build a portfolio that can withstand any situation and provide the ability to shift gears if necessary.

(Devdiscourse journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse assumes no responsibility in this regard.)


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