End of the month and quarter: Key aspects

Many beginner traders are unaware of the impact of the end of the month and quarter on the markets and continue their daily activities unchanged. Here are three mistakes that could cost you:

1. Ignoring rebalancing - for example, if you have a stock portfolio worth 10,000 PLN, and funds change their positions, this can cause sudden price fluctuations that will surprise you if you are not prepared for it.

2. Lack of attention to window dressing - fund managers may buy specific stocks to improve the appearance of their portfolios. If you own these stocks, you may experience a sudden increase in their prices, but if you are not prepared, you will not sell at the right moment.

3. Too tight stop-loss - during increased volatility, slippage and spread may be larger than usual. This can result in unexpected stop-loss execution, contributing to losses.

The rebalancing mechanism involves investment and pension funds often adjusting their portfolios at the end of the month or quarter, which leads to increased market activity. Window dressing, on the other hand, is an action taken by fund managers who try to improve the performance of their portfolios by purchasing popular stocks. Both of these processes can contribute to increased volatility, which for an unprepared trader means the risk of making incorrect investment decisions and losses.

Assume you have a capital of 15,000 PLN. With increasing volatility, your stocks worth 15,000 PLN can lose even 5% of their value in one day. This means a loss of 750 PLN. If you are not aware of these mechanisms, you may also miss opportunities to sell at strategic moments, which means additional potential losses or unearned profits.

For example, the stocks increased by 6%, but you did not sell because you were unaware of window dressing, which cost you a potential profit of 900 PLN.

To avoid the negative effects of the end of the month and quarter, follow the tips below:

• Monitor the market calendar and be aware of the end of the month and quarter.
• Analyze your positions and identify those that may be susceptible to volatility resulting from rebalancing or window dressing.
• Increase the flexibility of your stop-loss settings to avoid unexpected activation.
• Consider using automatic buy and sell orders to secure profits.
• Regularly check information about the actions of large funds and respond accordingly.

Every morning, check the market calendar and analyze the potential impact of the end of the month or quarter on your investments.