FIG. 2: SELL IN MAY STRATEGY APPLIED TO GERMAN XETRA DAX INDEX.
The simple “Sell in May” strategy has beaten a passive buy-and-hold approach for the DAX in the last 20 years.
This statement is also true for other benchmarks like the S&P 500. Especially in bear market phases the long exit by the end of April turned out to be an excellent timing signal, since the majority of the drawdowns could be avoided by following the “Sell in May” approach – the summer months of 1990, 2001, 2002 and 2008 serve as good examples here.
Admittedly one thing may not be concealed at this point: No seasonal pattern is set in concrete! While skipping the summer months has been of beneficial in strong downward phases, in certain bull market years, the flip side of the coin is evident: An investor who followed the “Sell in May” strategy in the years 1993, 1997 or 2005 and 2012 missed significant gains.
What does the performance report say?
Finally let us analyze the results. By clicking on the performance button Tradesignal provides a detailed insight into dozens of key figures such as:
- Net profit / loss
- Hit rate
- Profit Factor
- Maximum Drawdown
For the DAX, the “Sell in May” approach can be summarized as follows: Since 1991, 22 trades were carried out – 19 of which ended with a positive result. Excluding transaction costs, a net gain of around 12000 points total was generated, the largest drawdown was around 3100 points. Figure 3 shows an excerpt of the performance report – this time for the Dow Jones Industrial Average since 1950.