Seasonal tendencies can be an important factor in your overall market analysis. This is especially true in commodities, but also in other markets. I use seasonal tendencies or patterns as an important secondary factor. Your primary factor should always be price or price movement, in other words, the trend. Using only seasonal patterns as your main reason to make a trade is a dangerous proposition. The key to being a successful trader or investor is to put as many factors as possible in your favor before taking a position in the market. Couple this with solid money management and you will be successful.
Seasonal patterns are market cycles that can repeat each year on a consistent basis. Seasonality can be a major force in the marketplace. Some of these tendencies have been around for a long time. Over the last 40 years, sugar has tended to have its lowest price of the year in September and its highest price of the year in December. A good trade set up would be like this. The price of sugar starts bottoming out in August and then goes into a narrow consolidation pattern through September. Prices move up and break out of this narrow channel in October. You would buy on the breakout and put sell stop on the other side of the price channel. Now you have price movement going in your direction and the seasonal tendency strongly in your favor. You also protected yourself in case the market goes against you. If the price of sugar happens to be at or near historically low price levels, you could possibly make a fortune in this scenario. Other factors to consider would be cash basis and other underlying fundamentals. As I mentioned earlier, you want to have as many factors as possible in your favor before you take a position in the market.
Here are the seasonal tendencies of some other markets. Soybeans tend to be at their highest price level in the May to July time frame and the low tends to be in September and October. Crude Oil’s price highs tend to be in September and October and the low in December to February. The U. S. Dollar tends to be the strongest approximately the first half of the year before declining into year end.
Seasonal tendencies are an important element to consider in your overall analysis. You will be successful trading the markets if you put the odds strongly in your favor before taking a position. Always use solid money management by cutting all losses short. This is the secret to success
Gary E Kerkow is Chief Investment Strategist for Tradingmarkets4u.com. Over 20 years of trading experience including stocks, futures and options. He implements the strategies, methods, techniques, principles and psychology of the world’s best traders and investors. This includes Jesse Livermore, William J O’Neil and others. Visit my website at http://www.tradingmarkets4u.com