Join Dstockmarket's Community - Daily Market Analysis, Individual Stock Analysis.
Seasonality charts can be very useful to help traders and investors to know when is the best time to enter or exit a stock or the market. Stocks often move like the season that we enjoy every year. We have summer, autumn, winter, spring and we know what to expect in each season. Similarly, stocks and other asset classes also have their own 4 seasons. Although they are not as accurate as the seasons in the real world, nevertheless it does help the trader or investor to time his entry properly.
We will not be going into detail what usually happen in certain times but here is a taste of some seasonality in action:
While the above do not always happen like clock work, they are pretty reliable most of the time. But we will not guess too much. Instead we will employ the seasonality charts that you can find for free at stockcharts.com. They have conveniently put the seasonality charts in one place so that you and I can check how an index or stock has performed in a certain month over a period of years.
You can access the Stockcharts.com Seasonality Charts by clicking on the link.
You want to pay extra attention to the seasonality charts of indexes because 3 out of 4 stocks in the market follow the direction of the major indexes. The major indices are the:
Whichever sector your stock is in, do check out the seasonality of the sector index. Checking out all these indexes will give you an extra edge in the market. In an arena where it is so tough to make money, you need all the extra edge that you can get. Thankfully, the seasonality charts provided by Stockcharts.com is free.
When you click on the link, the above diagram is what you will see at first. The original setting is 5 years of data. Some people like to see longer data but I just prefer to use the most recent 5 years to spot the recent trend. We are using the seasonality charts just as confirmation not as a buy or sell indicator. We use it to improve our odds of success not to buy or sell solely based on what it tells us.
When you compare the seasonality chart of Dow Jones and the weekly and daily chart of Dow Jones you can actually see some very good patterns that follow the seasonality charts. Therefore, when you see in a certain month the Dow Jones rises 75% or more, you do not want to ignore what it is telling us.
On the other hand, if the Dow Jones has less than 30% probability of closing higher for certain months, you want to be extra careful of a correction or even the beginning of a long term downtrend. Since we are in a bullish environment and the long term trend is up, any weak months we just deem it as possible correction.
You can actually check any stock's seasonality on stockcharts.com. That is provided they have data on it. Most stocks that are listed in the American markets will be included. The reason why you want to check your stock's seasonality is because a stock also exhibit seasonality patterns like an index.
Let's take a look at the seasonality chart of Apple below.
So, if you are trend trading Apple and you wonder whether your stock will trend well for that month or quarter, all you need to do is to check the seasonality chart. When you see Apple in an uptrend and the quarter is usually good for Apple, it gives you more confidence to hold on to the stock a bit longer. On the other hand, if you are thinking of initiating a new position in Apple, maybe playing a breakout or break downtrendline and it coincides with a good month for the stock then you can pull the trigger with more confidence.
The versatility of seasonality charts also extends to currency pairs. Just key in the pair and you will be able to see how well they perform in certain months. Let me tell you this...you will be very surprised by the results and the accuracy of the seasonality charts.
By comparing the daily chart of USD/JPY with its seasonality chart you can really see the power of seasonality in currencies. When seasonality patterns match with chart patterns, you can often find yourself in a wonderful position to initiate a long trade or a short trade.
By now you should know that stockcharts.com seasonality charts cover almost all traded instruments. As long as you can find the symbol you can key in to get a seasonality chart. Let's take a look at oil and gold and how they perform in certain months.
Imagine having this kind of knowledge. Combining the power of a commodity's seasonality with the power of technical analysis. You certainly are in a very powerful position to predict short term trends and medium term trends. You can really take advantage of this knowledge and put in positions with extra confidence.
Looking at the daily chart of Gold etf GLD and comparing it with the seasonality chart can really tell you a story that will amaze even the most skeptical person. If you have failed in technical analysis before, that may change from now on as you combine the power of technical analysis with the power of seasonality charts.
Jan 18, 21 10:34 AM
New chart lesson for the 3rd week of January 2021. Hope you can benefit from this.
Jan 04, 21 11:30 AM
In this week's chart lessons, we will have a look at bitcoin and other charts.
Dec 29, 20 07:47 AM
We should continue to be bullish on the S&P 500 as a weekly bottoming tail forms in this uptrend.
Dec 22, 20 09:27 AM
The SPX is still in a nice bullish uptrend, with it staying above the rising 20 MA and 50 MA.
Dec 15, 20 09:53 AM
December 14 2020 will go down in history as one of those moments where 2 sets of electors emerge for swing states in the US Presidential Election.