Every Year Investors Profit Big On This Trade - Trade Stocks

Every Year Investors Profit Big On This Trade

By Thu, Dec 5, 2019

While most investors are obsessed with the so-called ‘Christmas rally’, there is a trade tactic that plays out even more consistently. It’s called the ‘January Effect’ and every investor should understand and profit from it. The ‘January Effect’ works best in up years and is caused my tax loss selling at the end of the year leading into January of the new year. A beaten down stock (loser) is sold heavily in the final month of the year as investors look to offset profits and minimize taxes. This means that a stock that is already down for the year could go even lower into year end. However, it also signals that once tax loss selling is complete at the end of the year, there are almost no sellers in January of the new year. This means that a beaten down stock into year end will likely see a strong bounce higher in January, receiving the ‘January Effect’.

Think of it this way; if an investor is going to sell a beaten down name, they will do so into year end to offset taxes. If they do not sell it, they will not be looking to sell in January since there is no benefit at that point. This signals a major lack of sellers and allows even a few buyers to propel a stock higher.

Find a sector or stock that has been crushed and is trading near the lows of its chart while the overall market is hovering near 52 week highs. Make sure the stock does not have any immediate bankruptcy issues. A great example in 2019 is the marijuana stocks. These stocks are trading at all-time lows as traders sell to offset gains in a market that is up over 20% on the year. In January, these stocks will likely snap back significantly under the ‘January Effect’. Watch or look at stocks like Tilray (TLRY), Canopy Growth (CGC) and others.

About the Author

Chief Market Strategist Gareth Soloway has been an avid swing and day trader since his days at Binghamton University where he studied Economics. After college, Gareth quickly excelled as a financial adviser but his heart was always in swing and day trading. He had this long standing belief that he could help investors make more money by advising them on shorter term investments (holding a stock for days to weeks) than the buy and hold crowd who lost 50% of their money during every market collapse. “Why not profit during the bear markets just like the bull markets”, he said. While helping others gain financial independence during the day, he spent his nights studying charts and price action, developing a unique market trading system that put his profits on a rocket ship. Some nights he would barely sleep when he found a new technique that was proven, once back-tested.