Any Edge From a Seasonal Bias?
A Strategic Approach to Historical Data
Nasdaq in July
Recently, Chris Weston from our friends over at Pepperstone tweeted this:
Nasdaq has been up for x15 years in a row during the month of July. Of course, his accompanying comment was tongue-in-cheek. But how can you potentially take advantage of these types of seasonal trends?
Firstly you’re making the assumption that this trend will continue. Which, let’s be frank is a big assumption… Just because historically the stats looked good, that doesn’t mean the pattern can’t change. And even a few red months in there wouldn’t make the stat any less impressive.
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Being More Strategic
#1 Trade around a core long position
One option, (probably the simplest) is to buy Nasdaq in small size and then trade around that core position throughout July. Effectively staying long, but trading in and out of the position along the way.
#2 Apply a direction filter to your trades
Another potentially better option is to apply a directional bias to your trades. IE: You carry on trading as you normally do, same setups, playbook etc. But you only take the long trades. No shorts. This way you aren’t doing anything different from your normal process, just aligning yourself with the historical theme.
Variations of this could be:
- Half size on short trades
- Play short trades as quicker ‘a to b plays’
- Hold long trades for further targets
The final option is to ignore it and just trade as normal! Personally, I lean to a mixture of #2 and #3. If that pattern starts to play out it will be evident on the chart and I like to align myself with the undercurrent of supply-demand imbalance anyway. So I’ll naturally calibrate to any trend.
It’s also worth pointing out that a 1% ‘up month’ may be green. But the Nas can do 1% in half a day…
The market could have been doing nothing/pushing lower for the rest of the month only to make a late rally on the last day!
If you like seasonal stats like this and want to go down a rabbit hole then this site Moore Research Center is a proper old-school seasonal strategy research company.