SEASONALITY 101

Seasonality is a major force in the markets. It has been so for many years and this is not about to change. Whether you trade stocks, commodities or commodity spreads, the odds are that seasonal tendencies will be one of your best and most consistent tools in the never-ending quest for trading profits.

While most everyone has an intuitive sense of what the meaning of “seasonality” is, it’s good to have a working definition. Our definition is simple:

“A seasonal price tendency is the propensity for a given market to move in a given direction at certain times of the year.”

Seasonal price tendencies can be found in virtually all commodity and stock markets as well as in a variety of economic data. The cash commodity markets have exhibited strong seasonal behavior for many decades, and there is also seasonal behavior in spread relationships.

Seasonality is not limited to the agricultural commodity markets since seasonality is not only a result of weather. Seasonal behavior is caused by many factors including demand for raw commodities which is influenced by patterns, cycles and trends in consumption, supply and demand.

There are those who claim that seasonality does not exist or that it does not provide us with information that can be profitable. History is the ultimate judge of which side of this argument is correct. As you will hopefully find in these pages, there is a plethora of highly convincing evidence that seasonality is alive and well in the markets.

Furthermore, the strength of seasonality is so profound that traders who do not use seasonals in their work or who are not aware of major seasonal patterns are, in our view, at a distinct disadvantage. The reliability of seasonality is so far ahead of most other trading methods that it puts them easily to shame.

We do not always know the reasons for seasonal price movements. While, knowing ‘why’ makes some traders more secure, our concern is not with the WHY of things, but rather with the THAT of things.

Some Words of Caution

Far too many traders in the futures markets lose their money. Why? There are many reasons for this but among the most common are the following:

1. Many traders begin with insufficient capital and overextend their margin.
2. Too many traders overtrade - they end up paying out more money in commissions than they make in profits.
3. Very few traders truly understand how to play the game. They lack not only the knowledge of trading methods but they also lack some of the basic skills such as order entry, effective risk management, diversification of assets, and profit maximizing strategies.

Seasonals are not the 'Holy Grail' of futures trading. They are just as fallible as any other trading method. Yet, seasonals do represent a stable and sensible approach to trading since they are based on the well established tendency for history to repeat. There is nothing as good as having the weight of history on your side. And that's what seasonals can do for you. But remember, no matter WHAT the seasonals say, you MUST exercise effective risk management if you want seasonals to work for you. ALWAYS limit losses. If you don't then you'll ride losses which will eventually eat up all your profits and much, much more.

Although the resources offered here at SeasonalTrader.com cannot resolve all of the above issues, we believe that they will prove valuable in helping you move toward the higher probability end of the spectrum. All of the recommendations on SeasonalTrader.com have had a lengthy history of accuracy. And while “past performance does not guarantee future results,” past performance in seasonals has shown itself to be a very reliable trading methodology.