October 2018 has not been a good month for stock market investors.  The major U.S. indexes have wiped out their gains for the year and investors are panicking that we are heading for a full stock market crash.


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The October Effect.

Media outlets who are always looking for a story have coined the term the “October Effect”. This refers to the fact the market declines strongly during October of every year.  This weakens investor confidence which starts a self-fuelling a cycle of market decline.

In fact, the October Effect is a myth.  Research done by liberatedStocktrader.com on the best months to buy stocks suggests that October is neither a great month for stock market returns or a bad month.  The research looked at monthly stock market returns for 29 year from 1980 to 2009 and concluded that in the 1980’s the market return +0.5%, in the 1990’s +1.9% and in the 2000’s +0.2%.  In fact, from 2010 to 2014 the best month to buy stocks was October, which returned +3.8%

Obviously, October in 2018 has been a bad month, but the statistics show that there are no fixed patterns.

How to Overcome Investing Fears.

Tune Out

One secret to overcoming your fears in the stock market are to tune out or at least reduce your intake of sensational news.  Recognize that news outlets need to sell stories, and boring stories do not make money.

Use Modern Market Data

You can also use the wealth of stock market and financial data to inform your own opinions.  The Fear and Greed Index was a term coined by CNN to try to assess the sentiment of investors.  This approach to assessing the investor sentiment has been given a remake by Certified Financial Technician Barry D. Moore.  The Liberated Stock Trader’s Modern Fear and Greed Index  take a new look at investor sentiment to enable you to visualize the amount of concern the market participants have.

“Using the right mix information, we can build a solid picture of how investors feel by using sentiment indicators and market supply and demand data” says the creator.

The Modern Fear and Greed index uses a combination of:

  • The Chicago Board of Options Exchange Volatility Index (Ticker:VIX)
  • The NYSE Advance Decline Ratio (Ticker:ADRN)
  • A 20 Bar Moving Average on a Weekly Chart of the S&P500
  • The American Association of Independent Investors (AAII) Sentiment Indicator
  • A mix of 26 additional technical analysis conditions

Using this data in combination enables you to build your own picture and opinion as to where the market is heading, which should ease your tension.

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