Conventional seasonal analysis suggests commodity "X" rallies 70% of the time in a certain time frame. That means 30% of the time it does not, and my observations show many of the 70% times barely manage to yield plus signs at all.
So the question becomes how do we determine which will be the 70% years, which will be the 30% years, and which will be the years containing the greatest price appreciation ?
Here at CYF we believe there are four parts to this equation.
First the emotional cycle. A cycle, simply stated, is the time it takes greed to turn to fear, or vice versa. I believe spontaneous cycles include such things as bullish consensus and other contrary opinion indicators.
Because this is a zero sum game, the public and their broker must be convinced to take the wrong side of the market. If we reduce this information to statistical data that can be measured against other extreme periods causing price reversal in the past, we have created one of the four parts to this puzzle.
Second the trend indicator. Trend indicators such as Stochastic, RSI, and others, are very useful. However, my observations show many times they will give buy or sell signals that for some unknown reason have little or no affect on the commodity in question. Determining which of these signals were reliable would avoid an age old problem, positioning against the trend. The correct sequence is found in monitoring 5 times frames simultaneously.
Thirdly, price. Because commodities are repetitious, we need to know where current prices are in relation to themselves, and our technical indicators.
And fourth, the favorite month of reversal. Researching 25 or 30 years of a given commodity to determine which months are dominant lows and highs could yield some amazing results. We call these the favorite months of reversal because they can be either highs or lows. So how does this improve our odds over the conventional 70% - 30% analysis we discussed at the onset? Our other three indicators should help determine if this is a high or low, and will strongly suggest if this favorite month might be somewhere in the middle. I beleive Favorite months are the next generation in seasonal analysis.
Here at Charting Your Futures we have designed Worksheets on each commodity containing all four tools in one easy to read format that can be viewed by traders under the "Historic Worksheets" button as a precursor to trading that market. Concentrate your efforts on markets that are "dymanic" with the CRB and your results could be much improved.Jay Gallemore
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Past performance of actual trades or strategies cited herein may not indicate future results. Trading in futures and options entails significant risks of loss which should be understood prior to trading and may not be appropriate for all investors. Please contact CYF for more information on how we manage these risks.