There are many different types of trading that people get excited about. Is it trend trading, value trading, reversions to the mean etc. However, one type of trading that is relatively unexplored is that of seasonal trading.
What is seasonal trading?
Certain stocks, currencies, and commodities exhibit certain seasonal patterns. Some of these you may have heard of like ‘sell in May and go away’ or that ‘metals tend to start the year well’ etc. Well, seasonal patterns can often be in place for specific reasons. So, platinum tends to do very well at the start of the year? Why? Because purchase managers tend to make the annual industrial purchase for platinum at the start of the year. They either don’t know or care about this seasonal pattern. You can see that platinum tends to gain strongly at this time of year. Check out the impressive pattern here.
How to use seasonal patterns.
Seasonax is a great tool I use for exploring these patterns and exceptionally easy to use. Once a seasonal pattern has been identified it is also good to look at the fundamentals and the technicals of the trade. Is there a key support or resistance level nearby where risk can be carefully managed? Yes? Then use the obvious technicals to improve your entry and exits. Are the fundamentals in line with the seasonal pattern? So, if there is a strong seasonal bias for JPY weakness, but markets are in a heavy risk off tone then bear that in mind.
Conclusion
The best way to use seasonal patterns is to combine them with seasonals, technical and fundamentals. Find a strong seasonal pattern, check the fundamental outlook, then look for key technical levels to use. This is how I use them.
