Seasonal trading strategies use historical patterns to predict market behaviour during specific times of the year. For beginners, this approach simplifies decision-making by relying on data rather than emotions. Here’s a quick overview of key strategies:

• Santa Claus Rally: Focus on the last five trading days of December and the first two of January. Historically, markets like the S&P 500 have gained ~1.3% during this period.
• Sell in May and Go Away: Exit in May and re-enter in November to avoid the weaker summer months, typically. Works well in global markets but requires adjustments for Singapore’s dividend cycles.
• Halloween Effect: Buy on 31 October and hold until 30 April. This leverages stronger winter performance while avoiding summer volatility.
• January Effect: Small-cap stocks often rebound in January due to year-end tax-loss selling and repurchasing.

Each strategy highlights unique seasonal patterns in both global and Singapore markets, such as the Straits Times Index‘s tendency to dip in May and August due to dividend payouts. By combining these strategies with risk management rules, you can better time your trades and reduce unnecessary exposure.

Key takeaway: Seasonal strategies offer structured, data-driven ways to optimise your trades. Start small, backtest, and focus on disciplined execution to improve your results.

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Santa Claus Rally Strategy

The Santa Claus Rally refers to a specific seven-day trading window: the last five trading days of December and the first two trading days of January. This term was introduced by Yale Hirsch, the founder of the Stock Trader’s Almanac, back in 1972. He observed a recurring pattern of market strength during this time. The strategy has gained popularity among systematic traders due to its clear timeframe and historically strong performance. Since 1950, the S&P 500 has averaged a 1.3% gain during this period, with positive returns occurring about 79–80% of the time.

For traders in Singapore, this strategy isn’t limited to global indices – it also applies to local markets like the Straits Times Index (STI). Take December 2025, for example: the STI closed at a record high of 4,639 on 23 December, with DBS hitting S$56.37 and OCBC reaching S$19.95, both all-time highs. Interestingly, the Santa Claus Rally is a global phenomenon. It has been observed not only in Western markets but also in countries where Christmas isn’t a primary celebration, including Singapore, Japan, India, and Indonesia.

The rally is often attributed to several practical factors. Institutional fund managers tend to take holidays during the final week of December, leaving the market in the hands of retail investors, who are generally more optimistic. Additionally, tax-loss harvesting usually ends by mid-December, creating opportunities for bargain hunters. Some institutions also engage in “window dressing”, buying top-performing stocks to improve the appearance of their year-end portfolios. As Jeffrey A. Hirsch, editor of the Stock Trader’s Almanac, puts it:

“Despite all of the high frequency trading and algorithmic trading and the velocity of the market these days…patterns [like the Santa Claus rally] continue to persist”.

Historical Performance Data

The S&P 500 has delivered a median return of 1.3% during the Santa Claus Rally period since 1928. This is notably higher than the 0.4% median return for any random seven-day period. The rally has been positive 71.9% of the time since 1928, and this percentage increases to about 76–79% when looking at data from 1950 onwards.

Smaller stocks often perform better during this time. Indices like the Russell 2000 and Nasdaq typically see stronger gains than large-cap indices, thanks to rebounds from tax-loss harvesting and year-end capital flows. For instance, in 2023, the Nasdaq Composite rose by 1.94% during the Santa Claus Rally, outperforming the S&P 500’s 1.58% gain and the Dow’s 0.82% rise.

The rally also serves as a predictive tool for the year ahead. Historically, when the rally occurs, the following year has averaged a 10.4% gain. However, if the rally fails – dubbed the “Grinch Effect” – the next year’s average gain drops to around 4.1%. Yale Hirsch famously remarked:

“If Santa Claus should fail to call, bears may come to Broad and Wall”.

One striking example is from 1999, when the Santa Claus Rally saw a 4.0% decline. This was followed by a 37.8% drop in the Dow over the next 33 months.

Step-by-Step Execution Guide

• Entry Timing: Begin your trade on 26 December (the day after Christmas) or at the start of the last five trading days of the year. To reduce risk, consider trading index ETFs like SPY (S&P 500) or QQQ (Nasdaq). Small-cap ETFs such as IWM (Russell 2000) are also worth exploring due to their strong performance during this period.
• Exit Strategy: Close your position on the second trading day of January if it is profitable. This approach aligns with the January Effect. If the trade isn’t profitable but stays above the stop-loss, some traders opt to hold until the end of January. A 5% stop-loss is recommended to protect against potential losses during the low-volume holiday market.
• Market Conditions: Before entering, ensure the broader index is trading above its 50-day moving average, indicating a positive trend. Additionally, check that the VIX is below 25. Significant macroeconomic stress – such as aggressive interest rate hikes or recessions – can prevent the rally from materialising. As Clik Trading Education notes:

“When the macro environment is severely stressed, Santa stays home”.

Given the lower trading volumes during the holidays, it’s wise to reduce your position size. This helps minimise the risks of slippage and volatile price swings.

Sell in May and Go Away Strategy

The “Sell in May and Go Away” strategy is one of the oldest seasonal trading tactics, tracing its roots back to an English saying: “Sell in May and go away, and come back on St. Leger’s Day.” This refers to a September horse race when traders traditionally returned from their summer breaks. The strategy involves exiting positions on 1 May and re-entering on 1 November to avoid the typically weaker summer months.

The reasoning behind this pattern lies in market dynamics. During the summer, trading activity tends to slow as institutional traders go on holiday, corporate earnings announcements decrease, and liquidity thins out. These factors often result in higher volatility and reduced returns. Historical data backs this up: between 1990 and 2023, the S&P 500 delivered an average return of 6.3% during the “winter” months (November to April) compared to just 3.0% during the “summer” months (May to October). Over a longer timeframe, from 1950 to 2023, the S&P 500’s total gains were 67% during winter months versus only 23% during summer.

In Singapore, this strategy takes on a different flavour due to the dividend cycles of key Straits Times Index (STI) stocks. For example, major banks like DBS, OCBC, and UOB typically go ex-dividend in May and August, leading to share price drops equivalent to the dividend amount. Over the last decade, August has been particularly weak for the STI, showing negative returns eight out of ten times, with an average decline of -3.3%. This suggests that for Singapore traders, avoiding the August–September period might be more effective than the traditional May exit. Like the Santa Claus Rally, this approach uses systematic trading based on historical data to inform decisions in both global and local markets.

Seasonal Patterns in Singapore and Global Markets

Seasonal trends are evident in both global and Singapore-specific indices. For instance, the Hang Seng Index (2005–2024) shows that May produced positive returns only 35% of the time, with an average return of -1.4%. However, June fared better, with positive returns 60% of the time, indicating that the “weak summer” isn’t consistent across all months.

For Singapore traders, the focus shifts from May to avoiding August and September. A study of the STI from 2000 to 2018 found that staying out during these two months resulted in an 8.5% annual compounded return, outperforming both the traditional “Sell in May” strategy and a simple buy-and-hold approach.

That said, there are exceptions. Occasionally, summer months outperform winter ones, highlighting the need for careful market analysis. For example, during the 2011 U.S. debt ceiling crisis, investors who followed the “Sell in May” strategy avoided substantial losses.

Risks and How to Manage Them

Despite its appeal, this strategy comes with risks. One major drawback is missing out on significant market gains. A study by Fidelity found that missing just the ten best trading days over a 20-year period could halve total returns – and many of these high-performing days occur during the quieter summer months. Frequent trading also incurs costs such as fees, spreads, and taxes, while missing dividend income further reduces returns. For instance, a study comparing the STI from 2000 to 2018 showed that the “Sell in May” strategy underperformed a buy-and-hold approach when dividends were reinvested. Additionally, this strategy carries market timing risks, as historical patterns don’t guarantee future success. The rise of algorithmic trading and global 24/7 markets has also diluted its effectiveness in recent years.

To mitigate these risks, consider alternatives like sector rotation instead of exiting the market entirely. Defensive sectors such as healthcare and consumer staples have historically outperformed during the summer, averaging a 4.1% rise from May to October since 1990, compared to the broader S&P 500. For Singapore traders, keeping an eye on ex-dividend dates for major STI stocks can help avoid buying just before a price drop equivalent to the dividend payout.

Another approach is to use valuation metrics like Price-to-Earnings ratios instead of relying purely on the calendar. A valuation-driven strategy has historically delivered 9.5% compounded returns compared to 4.2% for calendar-based timing. Finally, adopting a dollar-cost averaging strategy can help reduce emotional decision-making and smooth out costs over time, regardless of the month.

Halloween Effect Strategy

The Halloween Effect flips the script on the “Sell in May” strategy by focusing on when to buy instead of when to sell. The idea is simple: purchase stocks on 31 October (or the first trading day in November) and hold them until 30 April. After that, move your funds into safer options like defensive assets or cash during the summer months. This method takes advantage of the typically stronger winter market performance while avoiding the weaker summer period.

Historical data make a strong case for this timing. Between 1972 and 1996, the Halloween strategy delivered nearly 120% returns, compared to just 20% for a buy-and-hold approach. More recent backtesting of the SPY (S&P 500 ETF) from 1993 to 2023 shows a 5.57% annual return with only 44% market exposure, resulting in a 12.7% risk-adjusted return.

“The results suggest that in the US stock market the Halloween effect became more persistent since the middle of the 20th century… it is still present in the US stock market and provides opportunities to build a trading strategy which can beat the market.” – Alex Plastun, Researcher

For those new to investing, the Halloween Effect is appealing because of its straightforward approach and consistent performance. Studies show it outperforms the market over 80% of the time across a five-year horizon and over 90% of the time across a 10-year horizon. Additionally, the strategy has a reduced maximum drawdown of 37% (compared to 56% for buy-and-hold investors between 1993 and 2023), making it a less volatile option for beginners who want to avoid major market downturns.

Backtesting Results

The numbers back up the Halloween Effect’s effectiveness. Historical performance shows that this strategy consistently outperforms on a risk-adjusted basis. What’s important isn’t just the total return but how efficiently those returns are generated in terms of time and risk. From 1993 to 2023, buy-and-hold investors in the SPY saw a 7.69% compound annual growth rate (CAGR). The Halloween strategy, while delivering a lower 5.57% annual return, achieves a 12.7% risk-adjusted return because it only keeps you in the market for six months each year.

The table highlights how the Halloween strategy’s lower maximum drawdowns help manage risk, particularly for beginners. By capping portfolio declines at 37% instead of 56%, this strategy reduces emotional stress and makes it easier to stick to your game plan during tough times.

Research covering 1940 to 2015 confirms that the Halloween Effect remains statistically significant in the US stock market. Even after factoring in transaction costs like brokerage fees, the strategy continues to deliver excess returns. For Singaporean traders, this data is especially relevant when trading US-listed ETFs or global indices, as the effect is most pronounced in developed markets.

With these results in mind, the next step is identifying which sectors benefit most from this strategy.

Best Sectors for This Strategy

Sector-specific research reveals where the Halloween Effect shines brightest. According to Jacobsen and Visaltanachoti, the effect is most pronounced in production-focused sectors like industrials, materials, and technology, while consumer-related sectors show weaker results. This challenges the assumption that retail and consumer goods drive winter market performance. Instead, focusing on sectors tied to broader business cycles may yield better results.

That said, retail does see a seasonal boost, but for different reasons. For instance, Americans were expected to spend about S$15.6 billion (US$11.6 billion) on Halloween-related goods in 2024, with an average spend of S$140 (US$104) per person. This spending surge extends into the Christmas and New Year period, creating a window of opportunity for retail stocks from November through January. Beginners might consider combining production-heavy sectors for the full six-month hold with retail stocks for a shorter-term play during the holiday season.

For Singaporean traders, the Straits Times Index (STI) doesn’t exhibit a strong Halloween Effect like US markets. However, diversifying globally through ETFs or American Depositary Receipts (ADRs) can help capture this phenomenon. Historical data shows that US-focused portfolios have delivered 12.64% annual returns, compared to just 3.38% for Singapore-only portfolios. During the “off-season” from May to October, consider reallocating funds into Singapore government securities or defensive STI stocks like utilities and healthcare. This approach allows you to preserve gains while maintaining liquidity.

January Effect Strategy

The January Effect is a seasonal trend that focuses on the rebound of small-cap stocks at the start of the year. This pattern occurs because many investors sell underperforming stocks in December to offset taxable gains, pushing prices lower. When January arrives, these same stocks are often repurchased, driving prices back up. Additionally, year-end window dressing by fund managers and increased liquidity from bonuses further contribute to this rebound.

Over the past 20 years, small-cap stocks have outperformed large-caps in January about 65–70% of the time. For instance, the Russell 2000, a small-cap index, has delivered average January returns of +3.5%, compared to +1.2% for the S&P 500. In Singapore, the Straits Times Index (STI) saw positive January returns in 17 out of 30 years between 1995 and 2024. In 15 of those years, its January returns exceeded the average monthly returns, a stronger track record compared to the S&P 500, which achieved this in only 7 out of 30 years.

“The January effect is a documented phenomenon spanning over 50 years of market history, backed by statistical evidence showing small caps outperform large caps in January.” – Katie Gomez

Small-cap stocks, with their lower liquidity, are particularly sensitive to increased buying activity, making them ideal candidates for outsized gains during this period. For traders in Singapore, this presents a timely opportunity to capitalise on early-year market dynamics.

How to Find Small-Cap Opportunities

To take advantage of the January Effect, start by building a watchlist of potential small-cap stocks during the last week of December, when tax-loss selling typically peaks. Focus on companies with the following characteristics:

• Market capitalisation between S$300 million and S$2 billion.
• Stocks that have declined 25–40% in Q4 due to technical selling, not poor fundamentals.
• A December Relative Strength Index (RSI) below 30, indicating oversold conditions.
• A Price-to-Earnings (P/E) ratio between 5 and 15.
• Positive year-over-year revenue growth and a debt-to-equity ratio below 1.5.

Once you’ve identified potential stocks, consider a staged entry strategy. Allocate 50% of your capital between 2 January and 5 January to capture early price movements. Use the remaining 50% between 6 January and 10 January to buy on pullbacks. Exit positions that gain 20% or more by around 20 January, as the January Effect typically fades by mid-February. To manage risk, set stop-loss orders 12–15% below your entry price and limit small-cap exposure to 25–35% of your portfolio.

This structured approach helps you make informed decisions and align your trades with seasonal market trends.

Ex-Dividend Seasonality in Singapore

Another important factor to consider is Singapore’s dividend-driven price patterns. Many key STI stocks pay dividends in May and August, which historically leads to bearish trends during these months. For example, May saw declines in 10 out of 12 years, and August in 11 out of 12 years. Understanding these cycles is crucial for timing your January trades effectively.

Be cautious of the “Ex-Dividend Trap.” On ex-dividend dates, stock prices typically drop by the dividend amount. If a stock goes ex-dividend in early January, the resulting price drop might offset any January Effect gains. To avoid this, check dividend calendars before entering positions. Additionally, with retail trading making up about 32% of SGX volume, price underreactions can create momentum opportunities. Acting during the 26 December to 31 December window can give you an edge before institutional investors return in January.

Implementation Tips for Beginners

Now that you’ve got a handle on key seasonal strategies, it’s time to put them into action. Here’s how you can start testing and managing your trades effectively.

How to Backtest Your Strategy

Before diving into the markets, use historical data to test your seasonal strategy. A simple way to start is by manually recreating past trades using historical charts and tracking your results in a spreadsheet like Excel or Google Sheets. For example, when testing the “Sell in May and Go Away” strategy, simulate holding stocks from November to April each year. A backtest of this approach from 1980 to 2000 revealed an average annual return of +8.5%, with a T-statistic of 2.81. This significantly outperformed the May-to-October period, which only returned +1.2%.

When backtesting, be precise about the assets, seasonal windows (e.g., 27 October to 31 December), and entry/exit rules you define. Since seasonal strategies often yield just one data point per year, it’s essential to use at least 20 to 25 years of historical data to ensure your results aren’t a fluke. Compare the returns of your seasonal period to those of non-seasonal or random periods of the same length.

To avoid over-optimisation, rely on out-of-sample testing. For instance, identify a pattern using data from 1990 to 2010, then check if it holds true in a separate dataset, such as 2011 to 2020. Don’t forget to factor in real trading costs, like brokerage fees, clearing charges, and slippage, when calculating returns. A P-value below 0.05 suggests your strategy is statistically sound, meaning there’s less than a 5% chance the results are due to randomness.

Risk Management Basics

Keep your risk in check by limiting it to just 1–2% of your trading capital per trade. For instance, if your account is worth S$10,000, risk no more than S$100 to S$200 on a single position. This approach can safeguard your account from heavy losses – an important consideration, given that 71% of retail CFD accounts lose money. Use stop-loss orders on every trade to exit automatically if the market moves against you. This simple tool can potentially cut losses by as much as 50%.

Position sizing plays a critical role too. Beginners might find a fixed percentage allocation strategy helpful – risking the same percentage of their account on each trade. Instead of committing all your capital to one seasonal strategy, diversify by combining multiple strategies that perform well at different times of the year. This can help smooth out returns and lower portfolio volatility. During times of high market volatility or economic uncertainty, consider reducing your position sizes to minimise the impact of disrupted seasonal trends.

These techniques will help you implement seasonal strategies with discipline and accuracy, reinforcing the concepts you’ve already learned.

Free Learning Resources at Collin Seow Trading Academy

Want to refine your trading approach further? The Collin Seow Trading Academy offers valuable educational tools to help you get started. Their free e-course, Market Timing 101, is designed to turn seasonal theory into practical strategies. The course focuses on creating a systematic, disciplined framework, using technical indicators to cut through market noise and reduce emotional decision-making. You’ll also gain insights into blending long-term market trends with short-term signals for better trade timing.

In addition to the e-course, the Academy provides detailed guides on common trading mistakes in Singapore, trend analysis, and cash management. These resources aim to help you build a structured and emotion-free trading style, giving you the confidence to execute seasonal strategies effectively.

Conclusion

Seasonal trading strategies like the Santa Claus Rally and the January Effect offer a structured, calendar-based approach to trading. These strategies are especially helpful for beginners, as they reduce uncertainty and minimise the need for constant market tracking. Patterns such as the Halloween Effect, Sell in May and Go Away, and others leverage recurring behaviours, institutional adjustments, and regulatory cycles that have shown consistency over time.

Following these strategies helps build disciplined trading habits. Emotional decision-making is a major pitfall for traders, with nearly 90% losing money due to lack of structure. To avoid this, backtesting your strategy with at least 5–10 years of data and adhering to strict risk management rules – like risking only 1–2% per trade – can safeguard your capital and keep emotions in check. As Benjamin Graham wisely said:

“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve established a disciplined financial plan”.

For those starting out, the Collin Seow Trading Academy offers free beginner-friendly resources. The Market Timing 101 e-course helps traders master seasonal trends, while the Systematic Trader Program provides a comprehensive system for trading without emotional interference. With over 1,400 5-star reviews on Seedly, the Academy has guided many traders towards confidence and consistency.

FAQs

What is the best seasonal strategy for a complete beginner?

The ‘Sell in May and Go Away’ strategy is a straightforward seasonal approach often recommended for beginners. The idea is to sell stocks in May and then step away from the market until November. This method relies on historical market trends and recurring patterns, making it an easy-to-follow option for those new to trading.

How do I adjust seasonal trading for SGX ex-dividend dates?

When dealing with seasonal trading around SGX ex-dividend dates, the ex-dividend date becomes a crucial consideration. If you want to qualify for dividends, you’ll need to purchase the stock before the ex-date. Alternatively, you can plan your trades around this date, keeping in mind the usual price drop that tends to happen on or after the ex-dividend date. This approach allows you to align your trading strategy with anticipated market behaviour effectively.

How many years should I backtest before using real money?

Before you start trading with real money, it’s crucial to backtest your trading system thoroughly. The time it takes to backtest depends on a few factors, such as how frequently you trade and the quality of the data you’re using. The goal here isn’t about sticking to a fixed timeline but rather about gaining confidence in your system. Prioritise consistent results that build trust in your approach over rushing into live trading.