Commodity Trading: Introduction to
Seasonality
|
INTRODUCTION TO ALMANAC SEASONALS | READING
SEASONAL CHARTS | SEASONAL FAQ | USING
SEASONAL STRATAGEMS |
PREVIEW
ORDER FORM
Many things in nature are reoccurring.
Reoccurring events in nature are often referred to as seasonal.
The American Heritage dictionary defines seasonality as, “ A
recurrent period characterized by certain occurrences, occupations,
festivities or crops.”
There are numerous
examples of seasonal events in the animal kingdom. Swallows return to San Juan Capistrano every spring, like
clockwork, to feed and breed in the hospitable environment of the
missions. Each year salmon in
the Rogue River of Southern Oregon return to the streams where they were
hatched in order to mate and then die.
Following the salmon are steelhead which feed upon the salmon roe.
Following the fish is the fisherman hoping to pit their luck and
skill against these wily beasts.
Examples of seasonality
are not only found in the animal kingdom.
Take a look at cars. Each
year, the price of automobiles goes lower right before the new model year
vehicles are to be released. And
coats - the price of a winter coat is generally lower in mid summer
than in the briskness of winter. On a balmy summer day, the price of an
umbrella from a street dealer is typically cheaper than when it is
raining.
Another classic example
of a reoccurring event is the presidential cycle.
Every four years we are subjected to lying and double speak
(whoops, I mean campaigning). Though
this is not dependent upon the seasons, it is a reoccurring part of
American society and greatly affects our economy.
Seasonality is found in
agriculture to a greater extent than anywhere else in modern society.
Crops, despite the major advances in agribusiness in recent years,
are still dependent upon climatic conditions.
One must wait for the snow to thaw from the prairies before
planting Corn. Soybeans must be
harvested before the first hard frost or the crop will be severely
damaged. Adequate
precipitation and moderate temperatures are necessary to ensure a good
pollination, thus ensuring that that the crop will mature and bear the
fruits of the farmer’s toil.
It is this reoccurring
element upon which we are going to focus our primary study in this trading
course. By placing these
reoccurring events into the context of supply and demand, one is able to
narrow down potential speculative situations into areas where the most
opportunity exists. Warren
Buffet, in his 1998 Berkshire Hathaway annual report, summed it up best as
saying, “Under these circumstances, we try to
exert a Ted Williams kind of discipline.
In his book The Science of Hitting, Ted explains that he carved the strike zone
into 77 cells, each the size of a baseball. Swinging only at balls in his
'best' cell, he knew, would allow him to bat .400; reaching for balls in
his 'worst' spot, the low outside corner of the strike zone, would reduce
him to .230. In other words, waiting for the fat pitch would mean a trip
to the Hall of Fame; swinging indiscriminately would mean a ticket to the
minors.” For the futures
trader, the best cells are represented by the times of the year when the
particular market one is trading has had a strong historical tendency for
a directional move. Waiting
patiently for only these situations may make the difference between
profits and losses in the game known as speculation.
Seasonal
analysis presents tendencies, not guaranteed profits. Just because a market has done something for the past 15 or
50 years, each year does not guarantee that this pattern will reoccur this
year. The point of seasonal
analysis is to find situations where the environment is such that when a
trade is going to be placed, it is similar to the “fat pitch”.
We still have to “hit the ball”, but we are only swinging at
the pitches that present the best opportunity.
What we are characterizing in seasonal analysis is the “normal”
behavior of the market based on extensive research of past behavior. By only looking at situations that have historically been
“fat” pitches and practicing good money management, we should greatly
improve our odds of success in trading.
PREVIEW
ORDER FORM
| INTRODUCTION
TO SEASONALS | READING
SEASONAL CHARTS | SEASONAL FAQ | USING
SEASONAL STRATAGEMS | |
www.CommoditySeasonals.com
