The press has begun their annual warnings and speculating that October is a dangerous month for e-mini buying and selling. They are inclined to dredge up the October 1987 market crash as proof optimistic of impending doom. Yes, the drumbeats of economic damage and financial catastrophe are pounding with spectacular regularity based mostly upon that devastating week in October 1987.. But, are these warnings based mostly in actual fact or an instance of “news creation” of doubtful accuracy? Let’s have a look at historical past to evaluate October’s efficiency within the years after the 1987 and relate it to potential points in e-mini buying and selling, particularly day buying and selling and e-mini scalping.
From the onset I need to state my perception that catastrophic occasions up to now usually are not a closely weighted variable in e-mini buying and selling technique. On the opposite hand, to summarily dismiss any threat in October can be reckless and counterproductive in my e-mini buying and selling technique. Benoit Mandelbrot’s “The Misbehavior of Markets’ seminal book, and his discussion of “lengthy tail” events are proof positive that any constellation of variables can produce unexpected trading movement; the hundreds of variables in discovery of market price are difficult to analyze and usually go undetected (or properly interpreted) as market crashes have routinely surprised and confounded both economists and traders with their randomness and scope. Since the commodities and futures exchange tends to produce higher levels of volatility than the NYSE, which I attribute to exponentially higher levels of leverage, you would anticipate the price volatility expressed more profoundly in the price movement on the CME and other futures exchanges.
With my personal bias on the table, let’s have a look at yearly results in the Dow Index to determine if October has been a risky month to trade. In results that can be found on the insightful “Seeking Alpha” weblog and information from Dow Jones, listed here are the details:
· In the final 5 years, the Dow has superior 4 of the years, not declined
· In the final ten years, the Dow has superior six of the years, not declined
· In the final fifteen years, the Dow has superior eleven of the years, not declined
· In the previous 15 years, the Dow has superior at a mean of 1.76% in October.
Source: Dow Jones and Seeking Alpha weblog
There was just one yr (2008) up to now that noticed a big a drop in value ranges. In that yr the Dow skilled a drop of 14.06%; I’d characterize that quantity as the results of the banking/credit score disaster and never attribute it particularly to October particularly, because the earlier information has proven that October has not been a very harmful month for e-mini buying and selling. The information confirms that previously fifteen years October has not been a dangerous month, and even statistically related month for harmful buying and selling circumstances.
In abstract, I do not think about October as a difficult month to commerce in relation to different months of the yr; in actual fact, the info would recommend that October could also be a great month for e-mini buying and selling. Still, that October 1987 occasion stays a psychological barrier for merchants and apparently is way from forgotten. As at all times, better of luck in your buying and selling…