When Seasonality Can Be Misleading

Focus: STRATEGIES

Larry Williams Image Larry Williams President, ireallytrade.com

Never take a trade just based on seasonal patterns, warns Larry Williams, who instead uses them to confirm or strengthen signals given by charts and volume.

My guest today is Larry Williams, and Larry, you’ve been doing seasonal analysis for longer than most of us have been trading.

I wrote the first book ever on seasonality in stock and commodity prices way back in 1973, and now it’s everywhere; everyone’s into seasonals. I might not be the best with it, but I’ve used it the longest, so I have a little insight into it.

I’m anxious to gain that insight. Do you see some applications of seasonal analysis that you think are wrong?

Well, I think the big thing is that it is not mechanical. A seasonal pattern is suggestive. It’s not mandatory that it’s going to happen; it suggests we might get a rally at that point.

And, they change. Right now, the big topic is “Sell in May and Walk Away.” Well, in actuality, the best seasonal pattern from 1900-1950 was to buy in May. Now it’s changed from 1950 on and it was best to sell in May and walk away.

You really have to monitor these things as they come and flow in and flow out. It’s not just a mechanical trade of a seasonal pattern. You can’t do that and make money.

I’ve written about it myself and I usually refer to it as a “tendency.” It’s nice to look at it when it dovetails with my other technical work and volume studies; otherwise, it’s irrelevant.

Absolutely, it confirms.