Trade Futures Based on Seasonal Trends

Have you ever noticed that some products you consume are more readily available during a particular part of the year? Some futures contracts may have seasonal trading trends that could potentially follow a ‘peak’ time of year when the product has historically been used most by consumers and businesses alike.

Backtesting Seasonal Trends

Traders can potentially benefit from seasonal day trading by backtesting historical data to help identify market trends to target. For example, WTI Crude Oil (CL) and Gasoline (RB) futures contracts have historically peaked during the summer driving season. By identifying this trend, traders could potentially consider buying a WTI Crude Oil (CL) contract in early April.

The chart below of the May WTI Crude Oil (CL) futures trading contract captures a seasonal view of the peak summer driving season:

The chart below of the May Gasoline (RB) futures contract captures a seasonal view of the peak summer driving season:

During the colder parts of the year, Heating Oil Futures (UHO) understandably tend to rise. Below is a chart of the UHO futures contract with directional arrows showing the following:

  • GREEN – Build up to peak winter heating oil season (accumulation)
  • BLUE – Gradual slope down toward the end of the peak season (profit taking)
  • RED – The end of the peak heating season (sell off)

Protect Positions with Trailing Stop Orders

By adding a trailing stop order, traders could potentially limit any potential losses or protect potential gains. A trailing stop order ‘trails’ the existing price of the futures contract by the amount of capital decided on by the trader and ‘fills’ only if the contract decreases (bullish position) or increases (bearish position) by an amount less (bullish) or greater (bearish) than the futures contract’s current price. Trailing stop orders can be helpful with when managing margin requirements of futures contracts.

It important to note that stop orders are not guaranteed to protect a position. The market may move too quickly for a stop order to execute or fill. As always, please remain aware that there is risk associated with trading futures online.

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