How to make money on seasonal market fluctuations?

Cyclicity is present in all natural processes; day follows night, ebb tide always follows. A similar periodicity is inherent in the processes in the economy, therefore, it is important for a trader to monitor the seasonal fluctuations of financial markets in order to obtain additional profits and reduce risks.

Natural trading

Changing seasons has a direct impact on agriculture, shipping (regular hurricanes, mostly in the Pacific) and, albeit to a lesser extent, on mining. These cycles were, are and will be.

The globalization of the economy has reduced agricultural seasonal fluctuations to a minimum, but they are still present in local markets and may well be used for profit. In addition, new periodic trends appear with the development of new sectors of the economy. For example, global changes in the wind rose directly affect wind farms and the segment of alternative energy in general.

It makes sense to take into account natural seasonal changes only in long-term trading, when positions are held from several months to a year.

Consumer's decision

Consumer’s decision

The state of the economy is determined not only by the means of production, but also by the level of consumption, which forms the global seasonal fluctuations. Suffice it to recall the increase in electricity and fuel consumption in the summer, which affects the quotes of energy carriers (oil, gas, fuel oil) and related currency pairs. Also, seasonal sales and purchases of popular new products, for example, new models of smartphones or tablets, make their seasonal contribution to the value of companies’ shares.

The charts clearly show changes in the prices of stocks of companies in the field of new products (Apple) and seasonal sales (Amazon). Consumer cycles can be shorter, for example, there is a regular weekly increase in the value of Walt Disney shares between Thursday and Friday, associated with an increase in the number of visitors to Disneylands and the consumption of entertainment content of the company over the weekend. In the period Monday-Wednesday, the price may roll back to the previous levels.

Consumer seasonal cycles can be used in medium-term trading (from several days to weeks) on stock and foreign exchange assets.

Exchange rate

The stock and foreign exchange markets are often accused of the fact that the change in the value of securities is the result of speculative actions and does not reflect real economic processes. This is not to say that this is 100% true, but there is some truth in this. Financial markets have developed their own seasonal fluctuations associated exclusively with the actions of large players.

As you can see, during these periods the market becomes “thin” due to the departure of large sums of money due to the long holidays and the departure of most traders for summer holidays. On the other hand, small speculators get freedom of action and can completely reverse the market even with small volumes, therefore there is a category of traders who actively trade only these seasonal fluctuations.

The following periodic events also have a strong influence on stock and spot quotes:

  • January jump. At the beginning of the year, “smart” money returns to the market and begins active purchases, even if the economy as a whole has not yet “rocked” after the holidays. The market crowd closely monitors the actions of the major players and the saying “As you start the year, so you will live it” often works. For example, according to historical data, the January trend of the S&P 500 index continued until the end of the year.
  • Quarterly and yearly rebalancing. Every quarter, investors, especially institutional and hedge funds, assess the quality of their portfolios: they get rid of illiquid assets, fix profits and make new acquisitions. At the end of the year, assets that have fallen in value are sold to reduce the overall tax burden.