Market Health

How to Use Seasonal Trading to Your Advantage

Predictability.

That’s ultimately what we all want as investors… particularly in times like these when the market feels unhinged.

Before we get into a trade, we want to know that we’re not going to get burned and that we’re not going to leap into a stock only to watch it die, our dreams of financial independence along with it.

Predictability – or lack thereof – is why so many smaller retail investors get pushed to the sidelines.

Volatility’s maddening ups and downs make them feel like a passenger in a car with a drunk driver at the wheel.

But what if you could remove some of the guesswork?

What if you could target companies only when their shares are most likely to go up?

And what if you could do this over and over again, from one month to the next?

At that point, you wouldn’t be at the mercy of anyone. The game wouldn’t be “rigged” as so many investors routinely lament.

And that’s exactly what I’m going to talk about today.

Investing for Success

Imagine knowing the success rate of a trade before you put any money into it.

That’s the big draw of bond investing, isn’t it? You know there’s a pretty good chance that you’re going to make money before putting down even a dollar. The only question is how much.

In contrast, stock investing is too often looked at as a 50-50 gamble. The stock will either go up (hooray!) or go down (boo!).

But you can increase your odds.

You just have to look in the right places.

Let’s use this moment in time as an example.

It’s hard to believe it’s already November.

The Halloween decorations have quickly been discarded. And now we’re about to be thrust into the fire of the holiday shopping season.

In October, I gave my outlook for what to expect this year.

Admittedly, 2020 is (hopefully) a one-of-a-kind year. But that doesn’t mean the predictability of the markets is erased. And that’s comforting.

Now, over the years, we’ve seen more and more consumers lean toward custom, handmade, quirky or vintage crafts to give as gifts.

I myself have been the proud recipient of some of these.

Matthew Candles

And one engine behind this growth – and the resulting booming commercial success – is the e-commerce platform Etsy (Nasdaq: ETSY).

Etsy is the global marketplace for handcrafted goods. It connects creatives with customers, and it profits through marketplace and services revenue. Thanks to the pandemic, business has skyrocketed this year.

And we can see from Etsy’s quarterly retail that the fourth quarter – the holiday quarter – is its busiest time of the year.

Etsy Quarterly Revenue

Now, here’s where the secret I’m going to share with you comes in.

Because of this booming fourth quarter, we can predict how Etsy shares will move. And these trends remained intact, despite the mad, mad world that is 2020.

In fact, two of Etsy shares’ most important trends just transpired.

First, Etsy hates October. Since Etsy went public in 2015, its shares have averaged a 12.21% drop in the month, and they’ve ended October down every single year.

Every. One.

That’s predictability.

Second, Etsy hates third quarter earnings. If you were surprised last week when shares slipped on an earnings beat where revenue jumped 128% to $451.5 million, you shouldn’t have been.

Here’s the one-day performance of Etsy shares on its third quarter release…

  • 2015: -9.61%
  • 2016: -12.94%
  • 2017: -1.69%
  • 2018: +23.70%
  • 2019: -15.74%
  • 2020: -5.17%.

Pandemic or no pandemic, shares of the e-commerce platform have fallen on third quarter results in five of the past six releases for an average one-day drop of 3.58%.

That’s predictability too.

This is why I know not to buy Etsy shares in October or before third quarter results.

And even better, I can use this information to identify the most profitable time to hold shares. I can even use it to project how high – or low – shares will go. Over the past five years, this period has returned an average gain of 67.82% for Etsy shares.

A “Small Ball” Investment Strategy

Instead of swinging for the fences every time I invest, I look at what’s being offered. I look at what my best chances are for success.

And I do that by using a seasonal trading strategy.

In this approach, I don’t need to hit home runs every time I’m at the plate. I just need to get a hit – a single, double or triple.

I’m targeting companies that are at low points but are about to see momentum shift.

And these consistent, predictable winners are the keys to my success.

You don’t always have to be interested in what company is going to be the next Apple or revolutionize the way we live. But you have to understand that the way to find sanity in this seemingly “Mad Max market” of ours is through predictable trends.

Fortunately, we’re entering the busiest time of year for them!

Here’s to high returns,

Matthew