The Free Lunch

According to the Stock Traders Almanac, there is a free lunch almost every year on Wall Street.

Tax sellers will typically take their losses by the end of December. The stocks making new lows on December 15 tend to outperform the market through February 15 the next year.

The average return is +12% compared to the market’s average return of $3% in the same time period.

I decided to try this strategy out with some swing trades.

On December 15 I ran a basic 52-week low scanner, I eliminated recent IPOs, illiquid stocks, and recent splits. I was left with six tickers.

My Rules

I am putting my total expected risk at $300. This is about 0.5% of my entire trading account.

The worst performing year was 1985-86 with a return of -22.5%. Upside potential is 49% from 1974-75.

So that put my risk-reward at 1:2.5, decent odds. For round numbers, I figure my downside risk is 20% of the total investment. Making my total investment is $1,500.

I put about $250 with a maximum of 100 shares into each of the following stocks:

CHL @ $28.53

RCEL @ $18.70

MOMO @ $12.81

GLBS @ $6.16

BEST @ $2.12

METX @ 1.88

Exit Strategy

I have no hard stops at any particular price levels.

Profits may be taken early on any one stock with 100% gain.

Otherwise, I will use discretion to exits these positions between January 15 and February 15, 2021.

I have no idea if this will work or not. But I thought it would be a fun experiment either way. Check back for updates!

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