Seasonality Quant Analysis Matrix in Algowizard

The following are five ways that you can use seasonality in investing and trading:

1. Direct Trading: Seasonal patterns can of course be traded directly. For example, you can go long during the year-end rally. With this method, make sure that the individual investment is not too large and that stop lots are used.

2. Timing: Seasonal patterns can be used for timing. For example, you can buy stocks in November at the beginning of the fall rally, rather than at its end in early January. With this method investors, whose investment horizon is longer than a seasonal pattern, can also take advantage of seasonality by optimizing entry and exit times.

3. Filter: Conversely, investors who are very short-term orientated can also use patterns of longer duration. This is done by using seasonal patterns as a filter. For example, day traders cannot enter a position if the seasonality is negative. The number of trades is reduced in this way, but the probability of winning is increased. Larry Williams uses this method regularly.

4. Additional Input: You can also use seasonality as an additional input factor to your existing trading approach – no matter if it belongs to fundamental or technical analysis. For example, if you trade your stocks with a trend following approach together with a fundamental filter, you can simply add the seasonal trend as an additional decision criterion. Since seasonality has its basis in the calendar, while other trading approaches do not, you can in this way link non-correlated signals. This increases the probability of a positive trade.

5. Selection: With this approach, you review your portfolio at regular intervals of, say, one month. You then invest in the stocks or commodities that have particularly good seasonality in the coming weeks. After a month, you repeat this process, selling the stocks that are no longer seasonally interesting and rolling into the more interesting ones. For this approach, the screener in Seasonax is particularly helpful.