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Profiting from the Anomalies

Posted on September 2, 2023 by Donald Travers

There are a variety of factors that affect currency markets levels on a minute-to-minute basis. This consists of inflation data, gross domestic product (GDP), interest levels, unemployment, supply, demand, political changes, and broader economic forces, amongst others.

Complicating this are some general market trends, which were determined historically to exist. Like their share-price-based brothers, these currency markets anomalies might provide buying opportunities for investors. These anomalies include:

Price-based regularities:

  • Lower-priced stocks have a tendency to outperform higher-priced stocks, and companies have a tendency to appreciate in value following the announcement of stock split.
  • Smaller companies have a tendency to outperform larger companies, that is a key reason behind buying small cap stocks.
  • Companies have a tendency to reserve their price direction in the short and long-term.
  • Companies which have a depressed stock price have a tendency to have problems with tax-loss selling in December and bounce back January.
  • Calendar-based regularities:

    These regularities permit you to better time your investments in the short-term. Although investors should understand that over the longterm the advantages of a normal investment plan (investing every month) far outweigh the advantages of attempting to time your investment by way of a day or two, the next patterns have already been proven to occur.

  • Time-of-the-day effect. The start and the finish of the currency markets day exhibit different return and volatility characteristics.
  • Day-of-the-week effect. The stock markets have a tendency to start the week weak and finish the week strong.
  • Week-of-the-month effect. The currency markets will earn nearly all its returns in the initial fourteen days of the month.
  • Month-of-the-year effect. The initial month of the entire year will show increased returns on the remaining year. That is known as the January effect.
  • Investors should understand that don't assume all anomaly happens each time, but making certain you're alert to anomalies will help you to profit on the long-term and cope with market volatility in the short-term. In a nutshell, benefit from these anomalies, but don't try to utilize these anomalies at the trouble of one's long-term investment objectives.