Cybernetic Trading Strategies: Developing a Profitable Trading System with State-of-the-Art Technologies

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Seasonal Trading

Many commodities, and even some individual stocks or stock groups, have recurring fundamental factors that affect their prices. These forces can be seen by analyzing a market by day of week, day of month, or day of year. This is called seasonal trading.

TYPES OF FUNDAMENTAL FORCES

Three types of fundamental forces cause seasonal trading patterns. The first type is based on events that have fixed or relatively fixed dates. Examples are: The pollination of corn in late June and early July, and the filing of federal tax returns on April 15.

Many seasonal forces are related to events for which the date could change—for example, the government's release of the current unemployment numbers. If these dates remain fairly constant for many years, then seasonal effects can be identified. If these dates change slightly, it may look as if the seasonal pattern has changed when, in actuality, the seasonal bias relative to the reports has not changed. For example, the Thursday before the monthly unemployment number is scheduled to be announced has a downward bias in the T-Bond market.

The third type of fundamental forces is based on human psychological factors. For example, in the stock market, Mondays have an upward bias because many traders exit their positions on the preceding Friday and reenter them on Monday. This Monday bias has existed at least since the 1970s, but it ...