// -- 3 FEATURED ARTICLES -- \\
Do Seasonal Trades Make Money? - Dave Reiter
Basically, I use 2 types of trading methods (a short-term breakout method and a long-term method). My long-term method is based on seasonal trading patterns. In this article, I'd like to discuss the pros and cons of using seasonal trades.
First, please allow me to provide you with a definition of seasonal trades. Seasonal trades are repetitive price patterns that occur at approximately the same time each year.
Personally, I've been using seasonal trading patterns since 1992. Overall, my trading results have been quite positive. However, seasonal trades (like other trading methods) are not perfect. For example, some of my seasonal trades have a tendency to experience "contra-seasonal moves." In other words, they move in the opposite direction of their "normal" seasonal pattern. Obviously, these trades will lose money.
Why do "contra-seasonal moves" occur? They occur because "outside forces" cause these markets to "abandon" their normal seasonal patterns. Examples of "outside forces" are droughts, floods, early freezes, wars, and anything that disrupts the natural flow of the "commodity channel" from producer to consumer.
The good news is that contra-seasonal moves do not occur very often. The bad news is that we never know when an "outside force" will enter the market or how long it will last. However, sooner or later the markets will return to "normalcy" and the seasonal patterns will begin to work once again.
As most traders know, there are a large number of vendors who sell seasonal trades. Some are better than others. However, the major problem with most "seasonal vendors" is the fact that they offer an excessively large number of individual trades. It's not uncommon for a seasonal vendor to include 200 to 500 trades per year in his/her "seasonal package." A trader who purchases this information is overwhelmed by the number of trades. Obviously, it would be virtually impossible to take every trade (unless you had a extremely large trading account).
The trader who purchased the list of seasonal trades is now faced with a major dilemma. Which trades should be taken and which trades should be ignored? At this point, most traders simply pick one or two trades and hope for the best. As is usually the case, the trades that were picked end up losing money and the trader quits in disgust. Unfortunately, the trader is now convinced that seasonal commodities trades don't work.
In order to reduce my seasonal trading list, I adhere to a very strict rule which each trade must posses. Specifically, each of my seasonal trades must have an "accuracy rating" of at least 700 over the past 20-years. In other words, these trades have shown a profit at least 70% of the time over the past 20-years (or longer).
By using this "rule of thumb," I have managed to reduce my list of seasonal trades to 25 or 30 per year. Therefore, I generally establish about 2 or 3 new trading positions per month.
Based on my research and experience, I have found that seasonal trades will perform best during periods of moderate economic growth (2% to 3%) and moderate inflation (2% to 4%). It also helps to have a "calm and peaceful" trading environment (i.e. no wars, droughts, floods, or international crises).
I've also found that "industrial commodities" contain the most accurate seasonal price patterns. Examples of "industrial commodities" include: Copper, Cotton, Crude Oil, Lumber, and some other commodities.
In conclusion, seasonal trades are certainly worth looking into (based on my trading experience). However, seasonal trading methods do require a great deal of patience and commitment.
Low Risk Trading Is Key Rick Ratchford
There are plenty of methods available that a trader can use to enter trades. Some may be good, some bad. What is important when looking for a method of entry is whether the risk exposure is manageable for trader using it. Not every trader can or wishes to trade a method that exposes him to excessive risk. There are those with small accounts just trying to get an edge, and there are those whose psyche simply finds exposure to possible large losses unacceptable regardless of how deep their pockets happen to be.
Some approaches to trade entry, such as many trend following systems expose the trader to potential losses that are quite large on average. If you couple this with the low win-to-loss ratios of many of these systems, you could find yourself in some pretty big drawdowns that may be very discouraging. So it is important that the method one chooses to use for entering a trade exposes the trader to low acceptable losses if the trade does not turn out as expected or hoped.
Having a low risk entry method of course is not all that is important for trading success. For example, a method could basically suggest that your stop-loss be no more than x amount of dollars away from your entry to keep the initial entry risk low. But then if the method has a poor timing model for entry to begin with, you may find that your stop-loss orders get hit more often than not. Lots of low losses can add up to one big loss if the win/loss ratio of such a method is low.
It is common knowledge that the lowest risk entry location with the greatest potential for profits happens to be within points of a new major top or bottom. However, in an attempt to enter from a major top or bottom early enough requires many to guess. This type of approach is considered to be 'top or bottom picking' and very dangerous to do. This is because the market has yet to show that it intends to form a top or bottom at that time.
Now there exists methods to isolate the day or week that a daily or weekly top or bottom will likely occur. But note the word 'likely' used here. A high probability turn is just that, a high probability. No man knows with 100% certainty that it will indeed occur. The wise trader will recognize this with whatever method is used for anticipating these tops and bottoms and realize that steps should be taken to at least 'confirm' the expectation before entering the trade.
With my preferred method of anticipating market tops and bottoms, isolating these tops and bottoms are done on a regular basis. Because of the nature of market cycles, a future top or bottom can be isolated with a high degree of accuracy. Once a particular top or bottom is expected to form, the trader with insight will then look for some indication that the anticipated top or bottom is occurring as suspected. It would be at that time that the trader can plan his entry with the least amount of risk exposure.
The basis of my work is on market cycles. Not of the fixed duration variety you may see advertised by some big name cycle gurus. Individual time cycles may be of fixed intervals between tops and bottoms, but the market patterns we see on price charts are the 'composition' of several cycles. The resulting cycle pattern will not be fixed. To learn more about this phenomena, consider the works of J M Hurst. Electronic Engineers are well aware of the effects of combining two or more Sine waves (cycles) together. The result looks just like your price charts.
So with my particular method of isolating high probability future tops or bottoms, the next task is to keep the risk low when entering the trade in the event that the turn does not materialize. By studying thousands of charts over the last 13 years, I've noticed a very consistent pattern that helps in keeping the risk low upon entry. This pattern is based on the very fact that EVERY NEW TREND starts with first the extreme (i.e. top or bottom) and is soon followed by a correction of some kind. This correction can be simply a one-day affair or take several days to unfold. But regardless of the duration or magnitude, a correction WILL occur.
Noting this consistent pattern, it became obvious that if the method can isolate the high probable time period for a major top or bottom, confirming this as early as possible could be done by determining the next short-term correction using the same method of timing and allowing the market to fill you into the trade if indeed it occurs. If the anticipation is not correct or too early, the likelihood of having your order filled is extremely low. Additionally, upon having the order filled because the anticipated turn does indeed occur, the risk exposure would only be the difference between the fill and the extreme of that correction, normally only the range of one price bar.
Obviously, if it is a weekly bottom that is anticipated for a particular time period, the trader would look for a new weekly low to form within that expected time period. From there, the trader would note that price will start to move higher as that is the only way a weekly bottom or new bullish trend could possibly start. Viewing this from a daily price chart, at some point price will start to drop again (correct). If a new bull trend is to actually form, this correction should fall short of moving lower than the original weekly low that started this possible new bull trend. Where it stops correcting is the LOWEST risk entry location to go long if you are anticipating a weekly bottom is being formed and the trend is turning up.
Of course, during the correction phase following a new weekly low, for example, the trader would need to use his timing method to anticipate where this correction may likely end. He knows that it must end before moving lower than the current weekly low if his expectations are initially correct. This may be done by looking for corrections of 38%, 50%, or 62% of the initial move off the weekly low. Or as done with my cycle timing method, to simply look for the correcting bar to enter the daily cycle turn time frame before considering entering the trade.
Upon entering that daily time period, an entry order in the way of a BUY STOP above that price bar's high would fill me only if price starts higher the next day. To be filled this way allows the market to make that correction low price bar now a bottom itself, and most importantly, a bottom that is higher than the weekly bottom you anticipated early on to be the beginning of a new bullish trend. The range of that new correction bottom is your initial risk exposure, so you know in advance how much you need to risk for the trade. If acceptable, you'll know this up front.
In addition to waiting for the correcting price bar via the daily price chart to move into my cycle turn time period, following a new weekly bottom, I like to note if that particular price bar reaches some pre-calculated support value. For example, more often than not a correcting price bar that is destined to become a new daily bottom itself will usually occur not only within a certain time period as discovered via my cycle analysis, but will fall on support as well. Such support can be calculated using various methods available today, such as the Fibonacci ratios I provided in the previous paragraph, time and price squaring, Gann Angles, or simple trend lines for example.
To stay in this business of trading for the long-term requires that we keep our risk exposure low and plan to enter trades with the best potential for profit. I've provided the approach that I've found to be low-risk by letting the market prove our expectations as correct before our order is filled, and to allow us to know in advance what our initial risk exposure will be. Whatever timing model you choose to use, always keep in mind that that bull trends and bear trends have certain patterns that persist over time. New bulls will form higher correcting bottoms and new bears will form lower correcting tops. Know this and trade well. Cheers!
Simplicity in Your Trading - Mark Anderson
I have to agree with (Simplicity Article In Prior Issue By Mark Crisp) on this one. I've only been involved with trading for 15-months. Made some and lost some. Initially I bought a system based on being safe in the market place. I wasn't convinced that it could take advantage of all moves in a market and sought to find out more.
Like many, my journey took me to some weird and wonderful places via the internet. I came across systems that used planets, complex mathematics, universal laws and myriad variations of indicators. The result was that I fell into the trap of picking bits from some of these that I thought I understood and tried applying it to my overall plan. Sure I got some good trades in but lost a few too. I still did not 'feel' that I had a proper plan that I could stick to.
I actually found I was applying too many techniques of analysis to a market at any one time. Consequently I got contra-signals from certain indicators which clouded any trade decision I would make.
To cut a long story short, I have recently started from scratch - almost. I am now using very simple indicators that I am comfortable with. These tools were under my nose right from day one but I thought I needed some complicated mechanism to attack the markets. So I overlooked them.
At present I'm back-testing a few futures markets using the plan and rules I have formulated. So far it looks positive.
As far as simplicity goes, it takes me only 5-minutes per market per night using my charting package to asses whether to consider a trade or stand aside for the next day.
It may be far from being able to take full advantage of all market moves but one thing I have learnt after a run of losses from previous methods is that I don't need to be in the market all of the time and I certainly don't have to get in/out at the extreme low or get in/out at the top. There's plenty in between.
So to a large degree I've gotten over a psychological hurdle that I had to get everything the market offers. With that pressure off I've been much more accepting of the market and more content with a definite plan I can stick strictly to. Cheers to successful trading.