The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
Trading with Seasonals on Your Side: Part 1 of 3
08/31/2017 2:55 am EST
In this three-part series, I will discuss the seasonal trades from my experience and understanding of the markets and how traders can use proven, statistically valid seasonal relationships to enhance their trading results, writes veteran trader Jake Bernstein.
In this age of rapidly advancing technology, we frequently tend to overlook basic but time-tested and effective solutions to omnipresent issues and problems.
In today’s investment world, we often equate faster and more powerful computers with bigger and better profits. We tend to believe that artificial intelligence, machine learning, and algorithmic trading are better in the long run and in the short run than the tools which have been handed down through generations of traders who have learned from their successes and failures.
Although we must avoid becoming Luddites we must also take caution to not embrace advancing technological solutions as categorically best for our individual needs as traders and investors. To put it simply, there is much to be said for the tried-and-true.
Although I’m not suggesting traders can do best by interpreting trendlines on a chart or by making subjective decisions, I do believe there is a middle ground between 100% objective trading by the rules and the use of valid relationships as part of a proprietary decision-making process.
One such tool is seasonality. In this three-part series, I will discuss the value seasonals within the context of my experience and understanding of the markets and how traders can use proven and statistically valid seasonal relationships to enhance their trading results.
What exactly is a seasonal?
The term “seasonal” has unfortunately been misinterpreted many traders to the extent that it implies a relationship to weather or to seasons of the year. Weather related seasonal price moves are a subset of the broad seasonal concept.
Seasonality as I use it is defined as follows:
“The tendency for prices and/or other market related data to move in a predictable direction at certain times of the calendar year.”
While your definition may be slightly different, I believe this one will encompass the essence of what follows in this commentary and in the remaining two installments of this series.
Those who are familiar with the writings of W. D. Gann and Burton Pugh are well aware of the seasonal and cyclical nature these legendary traders attributed to market behavior.
In his classic book, the Behavior of Prices on Wall Street, Art Merrill statistically validated the fact that the Dow Jones Industrial Average demonstrated the predictable tendency to close higher on the day before major U.S. holidays. If you have not read that book, I strongly recommend it as an integral part of every trader’s education.
Contemporary traders such as Larry Williams and this writer have advanced seasonal trading concepts significantly by researching specific entry and exit dates for trades in stocks and futures. The objectivity and historical validity of what I call key date seasonal trades is not only impressive but extremely pragmatic in its ability to be part of a complete trading strategy.
What this series will cover
In this series, I will cover the following major topics:
- precise examination of seasonal trades
- the use of seasonal tendencies with trend indicators and
- seasonal charts – meaning and use.
See you next time. Trade well and prosper!
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