Analyze the Market for a Seasonal Bias. It is recommended never to buck the seasonal nature of a market. What is a Seasonal Trend?

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1 The seasonal trend in a market is our way of taking the fundamental price action of a market...and then chart it year-by-year. Analyze the Market for a Seasonal Bias STEP 5 Using Track n Trade Pro charting software with the Seasonals Plug-in, you can determine if a market s historical trending pattern is in line with your current line of thought for market direction. It is recommended never to buck the seasonal nature of a market. It is recommended never to buck the seasonal nature of a market. What is a Seasonal Trend? The seasonal trend in a market is our way of taking the fundamental price action of a market. Let s use corn for example, and then chart it year-by-year. The planting season begins roughly the same time each year, the cultivation of the crop starts and ends roughly the same time, and the harvest starts the same time each year. These fundamental actions can be put on a calendar and charted, and we can watch the underlying price activity based on these events. CORN SEASON PLANTED SILKED DOUGH DENT MATURE HARVESTED JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

2 5 Analyze the Market for a Seasonal Bias In charting the seasonal nature of the market, we can then see what these changes in season bring as far as price action is concerned, and of course, price action is what we as traders are first and foremost interested in. You ll notice that because of the seasonal nature of the commodities markets that on a normal year, price action will be similar during each point throughout the year, so much so, that we can chart it and give an overall view of the historical price nature of any given market. This is what establishing your seasonal bias is all about charting the overall yearly price action, which gives us a window into what the markets have a tendency to be doing during any given time of the year. The blue chart is the average price action during the past five years. This is what we would consider to be a normal market. If things are considered normal, then you can expect the overall price action within the market to react very similarly as it has in years past

3 5 Analyze the Market for a Seasonal Bias In this example, you can see that a normal year for Gold would be in a declining stage during this time period. The seasonal chart is scaled to the past 15 years; but yet, the underlying futures price is in a strong divergence to the seasonal chart, indicating that we are not having a normal year during this year in the price of Gold. (This is a perfect example of how you can use seasonal divergence in your advanced trading techniques. The second method we use to help us determine the seasonal nature of the market is the seasonal price overlay. This is where we actually chart the historical price average as a line and lay it right over the top of the chart. By doing so, we can not only see the overall historical price direction, but we can also see the actual prices people were paying in recent years for this exact same commodity. As a technical note, I like to set my price averages to three years and one year. The one year line tells me where prices were last year at this same time and in what direction prices were trending. I love being able to see what exactly prices did just one year ago. The second setting I like to use is the three year price average line, which combines the past three years prices and gives us an average price line of where prices were headed during the past three years. Knowing this information can give us insight to the direction markets generally trend during this particular season. One of the best features of this tool is that it is projected out into the future beyond today s prices so we are able to use it as a forward looking tool, rather than just a historical price average

4 5 Analyze the Market for a Seasonal Bias It is not uncommon to see this year s price riding the historical price average lines like a train on rails. When you see a market following historical averages that closely, it s a slam dunk trade in the making

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