Should You Follow the “Sell in May and Go Away” Strategy?

There is a saying in the trading industry that goes, “Sell in May and go away.” This is a common trading strategy that suggests for traders to sell their stock around May and then buy them back when November rolls along. This way, traders can effectively avoid the usually volatile months from May to October. According to this strategy, people who trade all year long have less chance for profit than those who are employing the sell-in-May-and-go-away strategy.

This strategy imposes the the period from November to April has a significantly higher growth compared to the historically volatile months from May to October. The famous adage has been around as early as the 1950s according to the Stock Trader’s Almanac. During that time, the Dow Jones Industrial Average had an average return of 0.3% from May to October while the months from November to April had a 7.5% return.

The reason behind the behavior of the market during these times are unknown however some academics attribute it to the lower trading volumes caused by the summer vacation months. The increase in winter is attributed meanwhile to the increase in investment flow in the market.

Many economists and analysts have already studied the trading adage with many of them dismissing it as it contradicts other theories which have more proof and support such as the efficient-market hypothesis. Despite this, many people who’ve tried it found that the strategy works most of the time. One such case was a study conducted from 1998-2012 where it showed that returns from November to April are significantly higher than the returns from May to October in all 37 markets included in the test.

Now the question is, should you follow it? And the answer is simple: it’s up to you. As stated, the reasons for the effectivity of this trading strategy is relatively unknown and there is no guarantee that it would work. And even if history shows that the winter months have a better promise of return than the summer months, it is not an indicator of profit. This year alone has seen a significant growth in the months of April to October so if you’ve withheld yourself from the markets, there’s a possibility that you’ve lost a lot of chances to profit.

In any case, it is up to you as a trader to know what you want. Whether you sell in may and go away or not, it is still your research and skills that will ultimately produce profit.