Best six months strategy
It's called the "best six months strategy." Simply put, the markets -- and the Dow Jones Industrial Average in particular -- perform much better in the November-April period than the May-October period.
The May-October slump, in fact, gave rise to the old investing axiom, "sell in May and go away."
But most investors don't realize they can use the consistency of the pattern, and its oscillating nature, as an investing strategy.
"We've found that most of the market's gains are made from November to April, whereas you either go down or are flat from May through October," Jeff Hirsch, editor-in-chief of the Stock Trader's Almanac, said in an interview on Breakout.
The historic discrepancy is larger than one might think. Stock Trader's Almanac analyzed the performance of the Dow Jones from 1950 through 2011 and found that the November-April period showed an average increase of 7.5%, compared to a meager 0.4% average gain for the May-October period.
"It's a pretty robust strategy," Hirsch said. "It's worked over the years. It's one of the most consistent things we've seen."
Still, the best-six month strategy is not as easy as simply selling on May 1 and buying on Nov. 1. Investors need to keep an eye on macro events and use technical indicators for the best times to get in and out. In some years, Hirsch said, it's better to re-enter the market in October.