Commodity Trading: Using
the Seasonal Stratagems
| INTRODUCTION
TO SEASONALS | READING
SEASONAL CHARTS | SEASONAL FAQ | USING
SEASONAL STRATAGEMS |
The Stratagems contain a
plethora of useful information about normal historic behavior of the
markets. The key to their
usefulness is in understanding that they apply to normal years, meaning
that strong exogenous shocks to a market will interrupt the normal pattern
of this market.
For example, much of the
seasonal behavior of the grain market is based on the time of year when
grains are planted, pollinated, and harvested.
If the crop is planted very early, then it reasons that it will
mature for pollination early, and will thus be harvested early.
Using this as a guide, one may expect the seasonal behavior to
occur a little early. By keeping in contact with your Broker, you can be informed of these facts and make
decisions based on the nonstandard set of information you have available.
Seasonal behaviors do not
occur in a vacuum! If one
does wish to trade strictly on a seasonal basis, then it is advisable to
diversify with a large spectrum of markets.
For example, a seasonal trader may wish to establish a portfolio
consisting of Unleaded Gasoline, Soybean Meal, Live Cattle, and Cocoa.
By choosing at least one market from each of the major groups of
commodities, a particular event (such as war in the Middle East) will not
disrupt the behavior of all markets.
For those who choose to
specialize in a particular market, seasonal behavior is invaluable.
Using seasonal behavior in conjunction with other sound practices
of trade, such as technical and fundamental analysis, along with good
money management, can go a long way in helping traders achieve long term
success in the markets. For
example, if one of the grains has been falling on commercial selling and
reaches a critical support area during February, then the informed
speculator may wish to look at establishing a long position when a bullish
pattern appears (like a 1-2-3 bottom or an upside break out of a sideways
channel). Using the seasonal
window of 1 week before or after the entry date in conjunction with a
technical formation, lends credence to both the technical formation as
well as the seasonal behavior.
The most important thing
to remember is that the Seasonal Stratagems are HISTORICAL and
HYPOTHETICAL, and following them does not guarantee profits.
They should be used in conjunction with proper money management at
all times, as well as solid analysis of the current situation.
Many traders wish to use
options instead of futures contracts to trade seasonally.
This can be done, but be sure to note that the HYPOTHETICAL
breakdowns presented are for futures contracts, not options.
So obviously, profit and losses will very greatly. Traders may wish to use closer to the money options to take
advantage of seasonal moves, especially if the seasonal move in question
is very short, as closer to the money tend to move more closely in
conjunction with the underlying futures contract.
Also, be sure to practice sound option trading principles when
using the seasonal biases presented, as option traders also have to
account for slower movement, time decay, as well as changes in volatility
and interest rates (delta, gamma, theta, vega, and rho respectively).
If you have any questions
regarding the Seasonal Stratagems, please feel free to e-mail
us.
| INTRODUCTION
TO SEASONALS | READING
SEASONAL CHARTS | SEASONAL FAQ | USING
SEASONAL STRATAGEMS | |
www.CommoditySeasonals.com
