The market remains overbought in many areas, and confirmed sell signals are beginning to appear, ass...
Trader Lesson: 5 Things You Should Know About Seasonals, Part 3
10/10/2017 3:17 pm EST
Here are five things you should know about seasonality between October and December to improve your trading, writes veteran trader Jake Bernstein.
In the previous two articles of this series I discussed the concept of seasonality and offered some examples of this extremely important trading methodology. It never ceases to amaze me how little is known about seasonals and their ability to pinpoint future market movements.
Hopefully, this series will open the eyes and minds of many traders to the power and accuracy of seasonal patterns. In the last article I offered an example of a seasonal chart. It took into consideration many years of price history in order to construct a global pattern highlighting reliable and predictable price movements on a week by week basis throughout the course of the calendar year.
In this article I would like to be more specific. Let’s begin by looking at some of the known facts about seasonality from October through December.
Here are some of the things we know:
- Stock market prices in the United States tend to move higher just prior to Thanksgiving, Christmas and New Year’s.
- Some of the most predictably bullish patterns have occurred during the last quarter of the year.
- Prices have often moved significantly lower into late October with several stock market crashes occurring during this period of time.
- Following the October decline prices tend to become strong in November and December.
- Some of the most predictably bullish seasonal trades occur in the November through December timeframe.
While these five points are clear and specific, is it possible to quantify them even further? Yes, I can do so by performing an iterative search of buy and sell dates in the October through December timeframe.
Some have termed this process “data mining,” attaching a negative connotation to the process. However, many traders correctly believe that given a large enough data history meaningful information can be extracted in this way.
By performing a search on the Dow Jones Industrial Average (DJI) using data from 1950 through 2016, and asking the question what has occurred with high accuracy during the period of October through December, the computer provides the following data.
Take some time and examine it. What do you think? Will history repeat? Remember that this is not a forecast, this is not a recommendation, it is merely a historical synopsis of what has occurred during this period of time.
Trade well and prosper.
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