Seasonalities

Patterns by the calendar

Jake Bernstein's book Seasonalities explores patterns in markets that depend on the time of year. Its lesson is that certain seasons or months have a consistent effect on a market.

Seasonality is a characteristic of a time series in which the data goes through regular, predictable changes that recur every calendar year. Any predictable fluctuation or pattern that repeats over a one-year period is seasonal. It is different from a cyclical effect: seasonal cycles sit inside one calendar year, while cyclical effects, such as sales boosted by low unemployment, can run shorter or longer than a year. Seasonality is not a day-trading strategy. It is a way of understanding the longer-term tendency over two or three months.

Reading a seasonal pattern

Seasonal patterns are recurring trends or behaviors at specific times of the year, found by studying historical data. There are reasons behind them: weather affects the production and demand of certain goods, commodities above all, and knowing the reason helps you anticipate the behavior. Seasonal analysis studies the past patterns to anticipate future moves and to decide when to buy or sell a specific asset.

The benefit is a better chance of success and a way of spotting opportunities. The risk is that seasonal patterns are not guaranteed and can change over time, so relying on them alone is a mistake.

Gold in August

The seasonal profile of gold futures over twenty years shows a yearly low in August, with a correction near the end of the month and the start of a rally. That is what happened in August 2023: a decline through the month, a low in the third week, then the turn. Back-testing gold over the years shows the same calendar: markets tend to drop in October and November and rise strongly in January and February, with exceptions when institutional candles and price action say otherwise. Look at the data yourself before you trust any of it.

Season against the calendar

The economic calendar on the Fundamentals page shows what is scheduled inside the season you are watching, so a seasonal tendency can be checked against the releases that might break it.