Get ready for the most active season in the stock market.
The last quarter has the highest trading activity of the year for the stock market and for the market in general.
Here are some of the major events that traders are ready to speculate upon heading into the fourth quarter:
1. Last earning season of the year – main reason why market will accelerate its action into the year end
2. Black Friday / Cyber Monday so-called Cornucopia Trading
3. Christmas Rally
4. Quarterly Expiration / Quadruple Witching Expiration and Year End
5. Window Dressing
6. January Effect
Here is what you can expect from fourth quarter trading:
The last three months of the year is where I make the most of my money in the market combining different strategies and having a well prepared game plan for each of the above mentioned events. It is the most traded quarter and when I am the busiest. Whether you are a day trader, a swing or position trader this is the optimum time to make money and capitalize on your well learned methods of trading.
A well defined fourth quarter game plan will tell you what to look for and when act to increase your yearend profits.
In the article today I will focus only on one of the six major events that happen in this last quarter —window dressing.
What Is Window Dressing?
“A strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. To window dress, the fund manager will sell stocks with large losses and purchase high flying stocks near the end of the quarter. These securities are then reported as part of the fund’s holdings.” —Investopedia
Window dressing occurs every quarter March, June, September and December but the last quarter is the most active.
Although there is not an exact time when window dressing officially starts, stocks usually start moving the last 10-14 day of the quarter. I usually prepare and scan for window dressing stocks after the first week in December.
If you want to start capitalizing on this year-end effect here is what you need to look for:
• Sectors and stocks that have outperformed
• Relative strong sectors and stocks that not only outperformed their peers but the market in general.
• Zoom in on winners
• Trade with the trend
• Look for market conditions to be in sync with your stock picks
• Look for momentum dynamic on the daily chart
• Pick high volume stocks
• Always have a wide variety of stocks from different sectors, do not have all the eggs in one basket
• Never get greedy
• Apply the same trade, risk and management strategies that work for you
• I am usually looking to close my positions close to year end or of the trend is strong I will carry on the trades into the new year and as soon as reversal occurs on the daily chart I close my positions.
TradeOutLoud portfolio picks for 2013 Q4 Window Dressing: GS, CAT, CVS, ADSK, JNPR, AMD, EJ, CELG, ABT, DOW. Some of the picks were carried into 2014 as the uninterrupted uptrend continued.
So, do you have a game plan on how to trade the fourth quarter?
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