The September Effect – Should You Worry?

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  • The September Effect suggests that stocks perform their worst in September
  • The theory is somewhat tenuously backed up by past performance
  • Bitcoin’s historical performance in Septembers gone by fuels the suggestion that it is not immune

The September Effect isn’t just an old wives tale, or rather it is, but it isn’t one just espoused by old wives. The theory of The September Effect has it that September is traditionally the month in which stocks perform the worst, and it is backed up by statistics on the matter. With Bitcoin being a very different market to traditional stocks, does it succumb to the same September malaise? The answer might surprise you.

What is The September Effect?

The September Effect has been so named because, according to traders’ bible The Stock Trader’s Almanac, on average, September is the month when the stock market’s three leading indexes, the Dow Jones Industrial Average (DJIA), the S&P 500, and the Nasdaq, usually perform the poorest. This isn’t fiction – the idiom is backed up by over a hundred years worth of data – although how many traders currently subscribe to it is unknown.

Reasons for The September Effect are still a matter of conjecture, with some analysts considering that the negative effect on markets is due to seasonal behavioral bias as investors change their portfolios at the end of the summer in order to cash in. Others suggest that mutual funds cash in their holdings at this time to harvest tax losses.

Is Bitcoin Susceptible?

Whatever the reason, The September Effect exists, or certainly has to this point. The big question for Bitcoin traders however is whether the cryptocurrency markets are susceptible to the same seasonal whims. If you’re a believer in unattributed Twitter charts, the answer is yes:

The above chart suggests that Bitcoin does indeed experience the lowest returns in September, with January and June coming in close behind, although with no source cited we can’t be sure of its legitimacy.

A crude check of Bitcoin’s last five years of price performance however suggests that the chart may be right after all – since 2015, only once in the month of September has Bitcoin ended the month higher than where it started it. In all other years, including during the 2017 bull run, Bitcoin had ended the month of September lower than where it started. The September Effect is, it seems, alive and kicking as far as Bitcoin is concerned.

Make of those very rough statistics what you will, but it probably isn’t the wisest move to base your trading philosophy around vague patterns dating back to first world war era stock markets.