Seasonal patterns vs Optimum seasonal patterns

|29th Nov 2023|


using AI to optimize seasonal patternsThe simple reason why you need to know the difference between traditional seasonal patterns and optimum seasonal patterns, is because optimum seasonal patterns significantly outperform their traditional counterparts. Let me illustrate.

GBPUSD has not followed all its traditional seasonal patterns (chart below) this year, but it has followed ALL of its optimum seasonal patterns this year. Yes, all. And it’s not just GBPUSD, the markets below are just a handful of the major markets across various asset classes that have followed all their optimum patterns so far this year. Not 70% or 80% or even 90% of their optimum patterns, but 100% of the optimum seasonal patterns identified by our AI seasonal software.

 
NIKKEI 225 AUDJPY MICROSOFT  
DOW 30 AUDCAD O'REILLY AUTOMOTIVE  
S&P 500 3I GROUP ADOBE  
FTSE 100 NVIDIA McDONALD'S  






To understand why this is, we need to look at what a true seasonal pattern is. A seasonal pattern is created when a market regularly moves in a particular direction during a certain time of the year. The 20-year seasonal chart of GBPUSD below shows its traditional seasonal patterns marked with green and red arrows, 13 in total. This would suggest GBPUSD regularly (consistently) moves in the direction indicated during each of the 13 periods, but that’s not entirely accurate.
 
GBPUSD seasonal patterns

You see, to create a traditional seasonal pattern a market can either regularly move in a particular direction or have larger moves in a particular direction that creates a misleading average, so not necessarily move more often in that direction.

Fig – 1 below shows a hypothetical example of this. The chart shows a market’s movement over a 10-year period, with the 10 orange lines indicating the price movement on each of the 10 years. Here we can see the market has had 5 up years but also 5 down years, with 2 of the up years experienced larger moves. This would create a hypothetical seasonal pattern something close to the yellow line drawn, showing a bullish pattern. So, there can be times where a traditional seasonal pattern is no better than a coin toss, with 50% of the years being up and 50% being down. Not the kind of seasonal pattern I want to be trading.
 
traditional seasonal pattern performance example              optimum seasonal pattern performance example

An optimum seasonal pattern, however, is solely based on periods when a market consistently moves in a particular direction, meaning they are true seasonal patterns. Fig - 2 above shows an example, this time of a hypothetical optimum seasonal pattern. There are now 8 up years and 2 down years, creating a seasonal pattern close to that of the yellow line. I would still expect to see down years like we see here, but we can see that price overwhelmingly wanted to move in an upward direction during the period, creating a true bullish seasonal pattern. Remember, this is what true seasonal pattern should be, periods a market consistently and repeatedly moves in a particular direction.

The chart below is still of the 20-year pattern of GBPUSD but this time the optimum seasonal patterns are marked along the bottom. Notice there are only 5, (2 bullish patterns and 3 bearish patterns) which tells me 8 of the traditional patterns we looked at earlier have no consistency and are unlikely to give you an edge while trading. 
 
GBPUSD optimum seasonal patterns

Knowing a market’s optimum seasonal patterns will completely transform how you use seasonal patterns and how you trade and invest in general. All the patterns illustrated above have a minimum 75% consistency and a 60% greater than average return. These periods are when a market is subjected to repeated supply or demand forces, and knowing when they are will give you an edge. 


 
 
Happy trading
 
Ray Gilmour
Founder & Senior analyst at Markets Made Clear.com