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One aspect of market analysis is statistical analysis, which is using statistics to find correlations and patterns, where opportunities of skewed probabilities may lurk, giving you an edge over the market in the long run. For investors, this lets you know the best month to start building your portfolio, or to rebalance/adjust your portfolio allocation.
Seasonality is a characteristic of a time series in which the data experiences regular and predictable changes which recur every calendar year. Any predictable change or pattern in a time series that recurs or repeats over a one-year period can be said to be seasonal.
This is different from cyclical effects, as seasonal cycles are contained within one calendar year, while cyclical effects (such as boosted sales due to low unemployment rates) can span time periods shorter or longer than one calendar year.
For the Singapore stock market, I have done a seasonality study, showing which months are more bullish and bearish. Contrary to popular belief, October is actually a rather bullish month. Every month has its unique characteristics, which skews the probability. As a trader,anything that tilts the probability in our favour is considered an edge.
Here are the results of my research:
Some key points to note: the best months for being LONG are April, November and December, while the best months for being SHORT are June, August and September.
There are many other patterns (some less obvious) which could have a significant impact on the stock market. Although your trading decisions should not be based solely on these, they can act as a powerful confirming indicator, or help you adjust your position-aggressiveness.