There is a market saying that one should sell in May and go away. This year, this theory proved to be a good advice. Let’s do a study on STI index to see how this strategy pans out. For simplicity, let’s assume the following trading rules:
a. Long Trading Rules:
- Buy STI index in the beginning of Oct every year.
- Set a stop loss of 10%
- If stop loss is not triggered by May next year, close the long position
b. Short Trading Rules:
- Short STI index in the beginning of May every year.
- Set a stop loss of 10%
- If stop loss is not triggered by Oct in the same year, close the short position
So how is our position if we follow these rules? The table below shows the trading result:
| Position | Entry Date | Entry Price | Exit Date | Exit Price | % Change |
| Short | 5/2/1990 | 1458.80 | 10/1/1990 | 1103.40 | 24.36 |
| Long | 10/1/1990 | 1103.40 | 5/2/1991 | 1557.20 | 41.13 |
| Short | 5/2/1991 | 1557.20 | 10/2/1991 | 1357.00 | 12.86 |
| Long | 10/2/1991 | 1357.00 | 5/4/1992 | 1499.00 | 10.46 |
| Short | 5/4/1992 | 1499.00 | 10/1/1992 | 1351.00 | 9.87 |
| Long | 10/1/1992 | 1351.00 | 5/3/1993 | 1783.60 | 32.02 |
| Short | 5/3/1993 | 1783.60 | 8/19/1993 | 1961.96 | -10 |
| Long | 10/1/1993 | 2015.30 | 5/3/1994 | 2296.50 | 13.95 |
| Short | 5/3/1994 | 2296.50 | 10/3/1994 | 2334.40 | -1.65 |
| Long | 10/3/1994 | 2334.40 | 12/9/1994 | 2100.96 | -10 |
| Short | 5/2/1995 | 2070.10 | 10/2/1995 | 2120.00 | -2.41 |
| Long | 10/2/1995 | 2120.00 | 5/2/1996 | 2406.20 | 13.5 |
| Short | 5/2/1996 | 2406.20 | 10/1/1996 | 2175.70 | 9.58 |
| Long | 10/1/1996 | 2175.70 | 5/2/1997 | 2004.30 | -7.88 |
| Short | 5/2/1997 | 2004.30 | 10/1/1997 | 1954.80 | 2.47 |
| Long | 10/1/1997 | 1954.80 | 10/21/1997 | 1759.32 | -10 |
| Short | 5/4/1998 | 1494.98 | 10/1/1998 | 938.08 | 37.25 |
| Long | 10/1/1998 | 938.08 | 5/3/1999 | 1892.43 | 101.73 |
| Short | 5/3/1999 | 1892.43 | 6/21/1999 | 2081.67 | -10 |
| Long | 10/1/1999 | 2021.14 | 5/2/2000 | 2172.01 | 7.46 |
| Short | 5/2/2000 | 2172.01 | 10/2/2000 | 1970.93 | 9.26 |
| Long | 10/2/2000 | 1970.93 | 3/15/2001 | 1761.14 | -10.64 |
| Short | 5/2/2001 | 1735.75 | 10/1/2001 | 1329.54 | 23.4 |
| Long | 10/1/2001 | 1329.54 | 5/2/2002 | 1737.54 | 30.69 |
| Short | 5/2/2002 | 1737.54 | 10/1/2002 | 1345.69 | 22.55 |
| Long | 10/1/2002 | 1345.69 | 3/11/2003 | 1209.15 | -10.15 |
| Short | 5/2/2003 | 1278.53 | 6/5/2003 | 1415.91 | -10.75 |
| Long | 10/1/2003 | 1621.06 | 5/3/2004 | 1841.39 | 13.59 |
| Short | 5/3/2004 | 1841.39 | 10/1/2004 | 1986.96 | -7.91 |
| Long | 10/1/2004 | 1986.96 | 5/3/2005 | 2146.04 | 8.01 |
| Short | 5/3/2005 | 2146.04 | 7/29/2005 | 2360.64 | -10 |
| Long | 10/3/2005 | 2302.03 | 5/2/2006 | 2613.87 | 13.55 |
| Short | 5/2/2006 | 2613.87 | 10/2/2006 | 2571.45 | 1.62 |
| Long | 10/2/2006 | 2571.45 | 5/2/2007 | 3395.57 | 32.05 |
| Short | 5/2/2007 | 3395.57 | 10/1/2007 | 3735.13 | -10 |
| Long | 10/1/2007 | 3734.94 | 11/20/2007 | 3350.69 | -10.29 |
| Short | 5/1/2008 | 3147.79 | 10/1/2008 | 2358.91 | 25.06 |
| Long | 10/1/2008 | 2358.91 | 10/8/2008 | 2123.02 | -10 |
| Short | 5/1/2009 | 1920.28 | 5/6/2009 | 2112.31 | -10 |
| Long | 10/1/2009 | 2672.57 | 5/3/2010 | 2974.61 | 11.3 |
| Short | 5/3/2010 | 2974.61 | 10/1/2010 | 3097.63 | -4.14 |
| Long | 10/1/2010 | 3097.63 | 5/2/2011 | 3179.86 | 2.65 |
| Short | 5/2/2011 | 3179.86 | 10/3/2011 | 2675.16 | 15.87 |
| Long | 10/3/2011 | 2675.16 | Open | Open | 2.06 |
For long positions, there were 15 winners out of 22 trades. For short positions, there were 12 winners out of 22 trades. So it seems that trading the long positions from Oct to May and short positions from May to Oct gives trader a slight winning advantage. Let’s see how this system will perform in the next 6 month. Happy trading!
