Seasonal Trading - Sit Back and Relax

[Kenny C]

Hello everyone!

Before I dive into the depth of my trade, I just want to give you some of my background.

Around February 2016 I began to look into the stock market for the first time in my life. I decided to take the plunge after realizing what a valuable asset only I had when it came to trading. It wasn't books, magazines, or courses. It was experience!

My father swing traded for 20 years to help him reach retirement. He still trades now as a hobby even though he is retired. I live with him every day. What a mentor I had!

Being so young at the time, only 15, I decided that then was the best time to start. I raked up my life savings, a meager few thousand. It was all I saved from birthday gifts, family holidays, and Christmas over the course of my life. I never had a job nor any allowance, so getting money was nearly impossible.

I didn't know where to start, so I asked my father.

Me: "How can I start trading?'
Him, "Start with a paper trading."
Me: "Sounds good, but can I copy your strategy?"
Him: "Unfortunately, for you to do so, you would need to quit school."(It was a 9-5 strategy)

He realized I was still in high school so I would be very busy. So he suggested a strategy that I could do while going to school: seasonal investing!!!

My father printed me charts from http://www.mrci.com/client/spmarket/ to start analyzing.

And that's the beginning of my seasonal trading journey.

Do you guys want to here more of my story of learning how to trade before I get to the trades? Or should I just skip to the trades?

 

[Quantt]

Hello everyone!

Before I dive into the depth of my trade, I just want to give you some of my background.

Around February 2016 I began to look into the stock market for the first time in my life. I decided to take the plunge after realizing what a valuable asset only I had when it came to trading. It wasn't books, magazines, or courses. It was experience!

My father was a was a full time swing trader - and I lived with him every day. What a mentor I had!

Being so young at the time, only 15, I decided that then was the best time to start. I raked up my life savings, a meager few thousand. It was all I saved from birthday gifts, family holidays, and Christmas over the course of my life. I never had a job nor any allowance, so getting money was nearly impossible.

I didn't know where to start, so I asked my father.

Me: "How can I start trading?'
Him, "Start with a paper trading."
Me: "Sounds good, but can I copy your strategy?"
Him: "Unfortunately, for you to do so, you would need to quit school."(It was a 9-5 strategy)

He realized I was still in high school so I would be very busy. So he suggested seasonal investing!!!

My father printed me charts from http://www.mrci.com/client/spmarket/ to start analyzing.

And that's the beginning of my seasonal trading journey.

Do you guys want to here more of my story of learning how to trade before I get to the trades? Or should I just skip to the trades?

why are you not in school now?

 

[Kenny C]

why are you not in school now?

No, I'm still at school. I just do seasonal investing while going to school. I just do it during my spare time.

If you're interested, I could continue my story. Or, I can just skip to the trades. Which one do you pick?

 

[tomorton]

No, I'm still at school. I just do seasonal investing while going to school. I just do it during my spare time.

If you're interested, I could continue my story. Or, I can just skip to the trades. Which one do you pick?

I'd like to try to understand the principles involved please.

 

[Quantt]

No, I'm still at school. I just do seasonal investing while going to school. I just do it during my spare time.

If you're interested, I could continue my story. Or, I can just skip to the trades. Which one do you pick?

Cool, the school is very important and please continue with the story, I find it is more import than the picks...

 

[Kenny C]

Long-Term Technical Analysis Part 1- Checking the Right Season

So I started analyzing and analyzing. It took me hours upon hours. I did all the research during the winter and summer breaks though because I would not have time if I went to school. However, when the season arrived and it was actually time to execute the trade, I just sat back and relaxed. Basically, I did all my research on the school breaks, and I traded based on that research for the whole year.

My version 1 strategy had two main parts in it: long-term technical analysis and short-term technical analysis.

Today, I will only talk about the long term because it is pretty hard to explain.

Long-Term Technical Analysis Part 1 - Checking for the right seasons:

1. The good trend must occur in ONE month

2. 15- and 40-year lines of best fit in the season must be straight and tight (minimizes draw-downs in the trade)

3. Lines must stretch over 20 units or more of the chart vertically. (means good amount of potential profit)
On the scale, 0 = contract's lowest price of the year on average, 100 = contract's highest price of the year on average.
I need the contract to move up/down at least 20% of its 52-week range.

4. It cannot be during a rollover.

I repeat this with ALL the charts available at MRCI to filter out all the good potential seasons.

Then I further verify the seasons that have been filtered out by looking at its historical data at investing.com. I will talk more about that more in my next post (Long-Term Technical Analysis Part 2- Verifying Seasons).

Refer to the picture below:

Any questions? Feel free to ask.

 

[Kenny C]

Long-Term Technical Analysis Part 2 - Verifying Seasons

So now, I have a basic chart that may be similar to the table below.



Now, I have to fill out the remaining columns of the table:
- Average Seasonal Return
- Hit Rate
- Volatility

To do so, I use the historical data from Investing.com.

Average Seasonal Return
This is how much the item usually earns in the season/month each year on average. It may be as high as 10% for some, and as low as 0%. An ASR for Wheat may be about 2.20%. This means, I can expect a return of about 2.20% being bullish on wheat during January.
The ASR is the target profit for the month.

The ASR must be above 1% in a month for me to consider the trade.

Hit Rate
This attribute is how often the item actually moves in the direction of the supposed direction. An example is a HR of 60% for natural gas. Since the seasonal direction for NG is bearish, this means 6/10 years, natural gas has fell.
HR is very important because it determines how likely you will succeed in trading it.

The hit rate must be above 80% for me to consider the trade.

Volatility or Average Daily Range
Volatility is used to determine how much the item moves in a day on average.
This is obtained by taking the ADR and dividing it by the day low. Take an average of the past 30 days to find out. A result may be 0.40% for US Dollar Index, whereas palladium would have 2.09%.
This makes sure that the gains targeted for the month is not wiped out in a day.

The volatility must be less than two-thirds (2/3) of the average seasonal return.

After all these criterion, I may have up to 2 potential trades per month.

A potential trade I researched is cotton:

Item: Cotton
Month: December
Position: Long
Average Seasonal Return: 6.27%
Hit Rate: 80.00%
Volatility: 1.47%

So I have finished long-term TA. Now there is a little bit of short term TA which will be discussed in my next post. Thank you for reading.

Any questions or comments? Please post below.

 

[richardws]

Hi Kenny I'm doing seasonal trading since 2015 and there are great opportunities here. You are young and I like that you want to get involved and learn more and more.
mrci is a very good site to do seasonal trading and I also use forecastcycles to analyze the seasonality mainly for stocks.

I'm still trading directionally and forecastcycles has also some good indications on US stocks based on statistics. And in the past I also used seasonalgo to analyze commodities and take trading indications on them.