Trading Seasonality in Individual Stocks

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Seasonality

Predictions and Analysis

Seasonality

Seasonality is a phenomenon where price undergoes similar and predictable changes around the same period within every calendar year. These changes can happen in a specific meteorological season, growing season, quarter, month, holiday period or off-peak period. Seasonality typically happens in the commodity market. For example, there is a seasonal trend in the demand for heating oil, pushing prices higher when demand increases and lower when demand decreases. There is a seasonal trend in the supply of soybeans (related to sowing, growing and harvesting), influencing price and producing patterns along the way.

Seasonality can also be found in other markets, such as stocks, indices and Forex and there are usually fundamental reasons behind it. Finding seasonal patterns and using them to predict a trend, to filter trade ideas or to identify a tradable opportunity can give a trader an edge. Please note that individual years can vary and that seasonality itself can be subject to change. Whether it is used alone or in combination with other techniques, seasonality is a useful tool in a technical trader’s toolbox.

Trading Seasonality in Individual Stocks

Seasonality refers to recurring patterns in asset classes, often due to a time of the year impact. For example, summer may push up the price of crude of oil as more people drive cars and go on holidays, or heating oil prices may be pushed up in the winter as more people require heat in their homes.

Seasonality doesn’t always have to do with the seasons though, basically we can just think of it as a time of the year when prices seem to fall or rise with some regularity. We even see certain tendencies within the trading day. For more on that see Time of Day Tendencies for US Stock Market.

Individual stocks can also experience this phenomenon. At certain points in the year, certain stocks have been historically great buy and sell candidates. Why it occurs could just be random, or based on some underlying fundamental of the stock.

There are a number of programs out there– TradeMiner is one of them–that looks for these patterns in stocks.

For example, for whatever reason, Starbucks (SBUX) seems to do well between August 6 and October 31. Over the last 12 years the stock has finished higher over this period 92% of the time, with an average profit of nearly 11% Figure 1 shows this period over the last few years. One thing to of course note is the overall uptrend in the stock over the last several years. If that trend reverses, it will likely have a negative impact on long trades taken during this period.

Crown Castle International (CCI) seems to well between August 13 and August 23, with an average gain of nearly 14%. 90% of the time, over the last 11 years the price has finished higher over this period.

Denbury Resources (DNR) on the other hand generally drops about 10%, 90+% of the time, between August 2 and August 28. This is based on data over the last 12 year.

There hundreds of patterns like this in different stocks and across different time frames.

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Final Word

There is no guarantee these patterns will continue. While they have a high win percentage, TraderMiner is going back in time and looking for recurring patterns, and is bound to find a whole bunch.

Continue to do your own due diligence on your own trades and analyze the stocks you propose to trade. A major trend change could alter the results of these patterns drastically. Also, just because the win percentage on the pattern is high doesn’t mean the price went straight in that direction. A substantial loss may have been outstanding before the price eventually moved in the anticipated direction.

Also, not every year was a successful year for these patterns. In any given year these patterns could result in a losing trade. As is always said “Past results are not indicative of future performance.”

Trading Seasonality in Individual Stocks?

Wednesday, January 3, 2020
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Seasonality Trader runs on Windows, Mac or Linux and also comes in a web-based version for your browser or mobile device.

Seasonality

By analyzing upto 30 years of historical data we detect patterns in prices for Stocks, Commodities, FOREX, and Options.

We display the pattern as a simple line chart showing what time of the year prices are at their highest and lowest.

Comparing Apples to Apples in Expected Price Movement

We put Seasonality in context with the current price and historical volatility, and centered the chart on the current day, to give you a perspective on expected price movement in the next 6 months.

We also allow you to compare the last 6 months of price movement with that predicted by Seasonality.

We even quantified the difference and called it Seasonality Variance. The lower the variance the better Seasonality predicted price movements!

Seasonality Cycles

We calculate annual Seasonality on a calendar week or calendar day basis or constrained by the quarterly earnings schedules.

Annual Earnings Seasonality lines up all the earnings days for respective quarters going back up to 30 years.

The result is the best predictor of price movement in existence based on thousands of data points and by the way that companies really work.

The Devil Is In The Details

Simplifying the expected price movement data as much as we did presents a hazard. The sheer volume of data behind it gets lost in the shuffle.

So we innovated to create the Seasonality Momentum indicator that shows every datapoint in one easy to understand bar graph.

You can see all the detail for upto 30 years behind every price movement quarterly, monthly, weekly or every single day. The detail for daily price movements is a boon for Earnings traders.

Seasonality Scanner

We isolate and quantify the best trading periods predicted by Seasonality for both long and short trades by maximizing the expected return on investment.

Then once again we avoid the hazard of oversimplifying, by showing the actual price movements over the corresponding trade periods going back up to 30 years and calculating a win percentage for all the actual cycles that made up the prediction.

These trade periods are the building blocks of a comprehensive strategy for using Seasonality to drive your trading.

Quarterly and Monthly Seasonalities

So far we have shown a lot of annual Seasonality.

But we also have Quarterly Seasonality predicting price movements on a quarter over quarter basis.

With Monthly Seasonality you can see the same thing month over month.

Finally with Quarterly Earnings Seasonality you can line up all the earnings days for every quarter going back up to 30 years.

5 and 10 Year Seasonality

As a rule of thumb we determine our best trading periods using 10 year seasonality. Ten years typically picks up the clearest patterns without being affected by adding more noise from times where things were quite different.

However we like to mix in 5 year seasonality to confirm the price movements of the 10 year seasonality.

Sometimes we add 15, 20 or 30 year seasonalities to make us even more sure.

Seasonality Comparison

To further build a case we can compare our predicted trade periods with Seasonalities from other Stocks, Options, FOREX, Indexes, or Sectors.

Overlaying other Seasonalities is always a couple clicks away or can be automatically added with our advanced chart styles.

Nothing builds confidence more than seeing that the trade you are about to pick matches with the expected price movements of the Sector as whole.

Seasonality History and Corollary Cycles

At any time we can select each of the different cycles that made up the Seasonality that we are looking at.

This enlightens us by revealing all the individual price movements that made up the Seasonal price movements and highlights in order which cycles have performed most closely to the current cycle.

This can be the final confirmation from our tools Arsenal that we are making the best trade possible.

Calendar

Leveraging the best trade periods calculated for over 10,000 stocks, commodities, sectors, indexes and FOREX we have created a trading calendar.

The calendar shows the best trades in a given week or month and can be narrowed down using various criteria and filters.

Radar

Calendar lays out the best trade periods based on when they start or the earnings date they depend on.

But Radar shows all upcoming trades, lets you compare and rank them, and can be narrowed down by various criteria and filters.

Radar also lets you find and compare at related trades in a click. For example, simply click to find all the trade options for the stocks in a sector, or the FOREX pairs related to another FOREX pair.

In case that wasn’t enough, maybe we want to search for trades matching a zillion other criteria.

With an ever expanding library of search criteria you can search for MACD crossovers, Pocket Pivots, and many more.

You can save your criteria and settings into strategies and even share them with others.

And if we like some of these criterias and settings and want to apply them to the results shown by the Calendar or Radar.

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