Written by A.J. Brown

The January Effect

Today is the first trading day of the year. It is also the first trading day of January, which is part of what is historically known as "The January Effect."

The January Effect is a brief window of time during which stocks usually rise more than average. If you look at the years 1927 to 2001, you’ll see that returns in January are, on average, at least double that of any other month.

Why does January see such strong gains when other months don’t?

Primarily because of taxes. Investors and traders tend to sell off their losing stocks before the end of the year for tax purposes. This causes stocks to initially drop in price. But when the stocks dip, the buyers rush in, pushing up prices more than normal. This is why the month of January has historically seen gains of 3.9%.

The so-called January Effect covers the last day of December and the first five trading days of January. But according to some sources, that trend is slowly migrating into December as more and more traders try to capitalize on the stronger-than-average price movement.

It is always fascinating to learn about patterns like this, but they won’t make you wealthy. After all, many patterns, like this one, are infrequent. Some happen only once a year. Most traders I know need to trade more often than that to make good money.

To truly succeed as an options trader (or a trader of any kind), you need a system. If you rely on your feelings to make trading decisions, you will lose money. It’s that simple. By using a system that "thinks" for you, you increase your chances of making consistently good trades. This is how you succeed trading options or any other kind of trading instrument.

If you are interested in an options trading system that has been proven to work, take a look at my options trading membership site.

Best Regards Always,

A.J. Brown

Categories: Strategies

3 Responses to “The January Effect”

  1. A Rough Economy in 2008? | A.J. Brown’s Trading Trainer Blog @ 5:32 pm (Pingback)

    [...] week, I wrote about the so-called January Effect. Historically, during the first five trading days the year, the market rises more than during other [...]

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  2. personal finance money tips - January 12, 2008 | KCLau's Money Tips @ 6:02 pm (Pingback)

    [...] Healy presents The January Effect posted at A.J. Brown’s Options Trading [...]

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  3. » personal finance money tips - January 12, 2008 » Homeandfamilybills - Mortgage News, Mortgage Article, Mortgage Tips, Mortgage Resources @ 1:10 am (Pingback)

    [...] Healy presents The January Effect posted at A.J. Brown’s Options Trading [...]

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