The following is proof that even the smartest of traders and statisticians can have crazy ideas. But is an idea really that crazy if it works? Yes. Yes, it is. There are two rules that make up the January Barometer. Rule #1 - January's First Five Days Rule #2 - As January Goes, So Goes The Year Rule # 1 - January's First Five Days If you look at the performance of the first five trading days in January, since 1950, an incredibly accurate pattern emerges. January's first five trading days preceded full-year gains 86.8% of the time! If the first five trading days end up, the entire year will close up. If the first five trading days end down, the entire year will close down. In 1972, Yale Hirsch noted that as the wealth and power of financial institutions continued to grow, it became easier for them to manipulate these first five trading days. He created another January barometer: As January Goes, So Goes The Year Rule # 2 - As January Goes, So Goes The Year If you look at the performance of the entire month of January, since 1950, another awesome pattern emerges that can really help your trading. The entire month of January has preceded full-year gains 88.5% of the time! If the entire month of January ends down, the entire year will close down. If the entire month of January ends up, the entire year will end up. The January Barometer is caused by tax selling where many investors will sell off stocks for tax losses to counter capital gains, then reinvest in the New Year. Stocks, which have been sold off to realize the tax losses, will be at a discount to their market value. Institutional traders, hedge fund and money managers step in and buy up these sold off stocks and this creates buying pressure in the market. The January Barometer is therefore a measure of the emotions of institutional traders and money managers. If they are upbeat about future growth prospects, the desire to buy up sold off stocks will be great. If they are fearful and uncertain about future growth, the desire to buy up sold off stocks will be less or even nonexistent. You can think of the January Barometer as putting a carrot in front of a horse. The horse being institutional traders and money managers. The carrot being stocks that have been sold off for tax purposes. Does the horse give in to temptation and gobble up the carrot put in front of him?-- or does the horse see the carrot and just turn around and walk away? How the horse responds to the carrot is the psychology behind the January Barometer and its predictive capacity.