Nothing floats my trading boat more than the subject of market timing. For nearly three decades now, I have dedicated my whole trading life to the discovery and application of amazing market timing techniques.
During this incredible journey into the world of esoteric discovery, I have been blessed numerous times for having an open mind when it comes to market forecasting. So often we are bombarded by the naysayers that market prediction with any valuable level of accuracy is impossible. Time and time again I have proven to those who have crossed my path that accurate market forecasting is not only possible, but being done week after week.
Of the many things I have come to discover during my research and studies in the field of market forecasting that the markets do in fact tend to repeat certain patterns. What often bugs my mind is that much of technical analysis is based on a certain amount of pattern recognition that most accept as important, yet how these patterns repeat (cycles) is often shrugged off as unimportant.
Patterns repeat because of market cycles. The word 'cycle' itself is "a series of events that are regularly repeated."
Each day is a 24-hour cycle based on the earth's rotation. Each year is a cycle that can be divided into four 3-month periods referred to as the seasons, which is due to the earth's relationship to the sun.
The daily cycle is marked by the sun coming up each day, going down each night, then repeating this cycle over and over again.
The annual cycle is marked by the earth revolving around the sun, returning back to its starting point about every 365 daily cycles.
This basic explanation is easy to understand, where we have a very short-term cycle (days) that oscillates within a much larger cycle (years).
With seasonal analysis, we are looking for some regularity in market behavior based on the time of year that we can take advantage of for purposes of market timing. My many years researching market price action has proven to me that markets do tend to exhibit certain price tendencies during certain times of the year.
Here are some recent examples.
In the British Pound currency market, a bottom occurred on May 29, 2014. This year, a bottom occurred on June 1, 2015.
Now you might be thinking, "those are different days!" Yes, but if you look at your daily chart, you'll find that June 1, 2015 is only one trading day after May 29, 2015!
Following this bottom, the British Pound made a higher daily swing bottom on June 4, 2014 and made a following top on June 19. This year a following higher bottom formed on June 5, 2015 and made a top on June 18!
Spend any time studying your charts and you will see for yourself that this is not some coincidence, but often occurs. So why do so many dismiss this method?
The largest reason is that it is not 100% reliable, as if anything in trading is 100% reliable. There are going to be turns that occurred one year but not the next. Also, a bottom then does not mean a bottom now. The seasonal market timer is well aware that we are looking at 'when' price action changes direction, not unnecessarily whether it was a bottom or top in expectation that it will do the same 'type' of turn this time around. In the world of cycle analysis, there is a thing called 'price inversion', where the cycle pattern flips 180-degrees in phase.
The purpose of this article is not to make you a seasonal market timing expert, but to open your mind to the validity of market forecasting for market timing purposes. While seasonal timing is valid and powerful, it is only one method among many others that used together increases your potential for precision market timing and low risk trading.