CHAPTER 10Seasonality and Calendar Patterns

Chapter 6 introduced prices as a time series and identified its four components as the trend, the seasonal pattern, the cycle, and chance (random) movement; it included various ways of finding the trend using statistical analysis and forecasting techniques. Chapter 7 then showed different ways to calculate trends, and Chapter 8 applied those techniques to trading systems. Of all techniques, the trend is overwhelmingly the most popular foundation for trading systems. In this and the next chapter we turn our attention to two other principal components, the seasonal and cyclic movements.

Seasonality is a cycle that occurs yearly. It is most often associated with the planting and harvesting of crops, which directly affects the feeding and marketing of livestock. Normally, prices are higher when a product is not as readily available, or when there is a greater demand relative to the supply, as often occurs with food or heating oil during the winter months and electricity during midsummer. For grain, cotton, coffee, and other agricultural products, the crop year is dominated by planting, harvest, and weather-related events that occur in between. The most abundant crops have been produced in the northern hemisphere, but many countries in the southern hemisphere have become a significant factor since the early 1980s: Brazilian soybeans, Brazilian and Mexican orange juice, and Chilean fish production. Then there is Australian and New Zealand ...

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