When doing am overall market analysis, the primary factor must always be price or price movements, or the market trend. However, seasonal tendencies can be used as a secondary factor when performing your analysis as they reinforce your chances of securing a stronger position in the market. The technique to successful market analysis is to consider as many factors as possible. Supplement this with effective money management, and you have what it takes to become a successful investor.
There are recurring market cycles each year that create the so-called seasonal patterns. These seasonal tendencies are a major force in the market. You will be successful trading the markets when you work the odds to your favor prior to making a position. For instance, sugar tends to be priced lowest in September and highest in December every year. A smart investor would use this pattern to develop a good trade setup. The price of sugar starts hitting bottom-level in August to consolidate on a narrow channel through September before breaking out in October. To gain a strong position on the market, buy on the breakout in order to influence the price movement in your favor and gain protection in case the market opposes you. If the price of sugar monumentally drops, you can even make a fortune.
Other seasonal patterns of other markets include:
• soybeans are likely to be at their highest price level from May to July to drop from September to October;
• crude oil prices are at their highest in September and October and at their lowest from December to February; and
• the U.S. dollar is at its strongest within the first half of the year before regressing into year end.
The catch: seasonality is not the only factor to consider. One should also ponder on the cash basis and other fundamentals.
