Thursday, April 30, 2009

Sell in May, Go Away

Udayan talked about this strategy on CNBC-TV18 : "sell in May, Go away", and, come back in November. I took a a close look at the "Sell in May, Go Away" strategy that Wall Street usually advises this time of year.
The strategy is:
Sell in May. Come back in November to buy. To computerize this, the rules have to be defined. I have changed the rules to determine the results of buying in may and exiting in Ocotber, and, buying in November and exiting in April. The rules are:
Test data: NSE50 Index from July 1990 to April 2009.
Test 1.
Buy on the last trading day in April
Cover the long position on the last trading day in October.
Number of Years: 18
Winning Years: 10 (91,93,94,95,97,99,2003,2005,2006,2007)
Losing years: 8
Net Gain: + 319 points
Test 2
Buy on the last trading day in October.
Cover the long position on the last trading day in April.
Test Results:
Number of Years: 19
Winning Years: 13
Losing years: 6 (90-91, 92-93, 94-95, 2000-2001, 2002-2003, 2007-2008)
Net Gain: +2750 points

While buying in both time spans make money, The Buy in Ocotber, sell in April seems to be a viable strategy.

The message is: the period May to October is likely to be choppy, difficult for the markets, based on historical data.


solo said...

Sometimes our stoploss triggers during intraday volatility.

In this case what should be our strategy:--
Buy agin above suppport(previously broken above our stoploss) OR Leave that trade with the idea that the stock has become weak(if we want to trade only on the long side).

Secondly, Please tell me how to trade trendlines' signals.

Manish Chauhan said...

I understand that this startegy is based on probability . There is more chances of making money with this strategy than loosing money .

But cant we also add two review rules in between .

Rather than Buy in April and Sell in Oct , should we make it 3 or 4 step rule ,something like

1. Buy in April
2. Review 1 (take decision weather to add or reduce or cancel)
3. Review 2
4. Sell in Oct

I think by making it 3 or 4 step , we will add little work but increase the chances of profits to greater degree .