You may have heard the stock market phrase “Sell in May and go away.” This simplified phrase references seasonality, which can be a highly informative guide to market trends.
Seasonality in the futures markets involves the study of historical patterns in futures prices throughout the year. These price patterns or tendencies may be repetitive due to seasonal rhythms and other cyclical influences in the market such as planting and harvesting, cultural festivals, holiday shopping, economic factors, and supply and demand dynamics for specific futures markets.
An In-Depth Look at Seasonality in Futures Trading with Larry Williams
How are seasonal patterns in futures trading calculated?
Although there are several ways to calculate seasonality, the most common way is to take the performance of a futures market (day by day or week by week) over some number of years, average each unique bucket of days or weeks separately, and then combine them into a one-year seasonal chart from January to December.
Traders who employ seasonality typically review a different number of lookback years to get a multi-time frame perspective—normally 5, 15, and 30-year lookbacks.
A 5-year short-term seasonal chart is used to identify the most recent pattern.
A 15-year seasonal chart is more balanced for better correlation.
A 30-year seasonal chart is used for longer-term viewpoints to better compare and confirm the 5-year and 15-year charts. (Figure 1 and Figure 2)
Figure 1: Gold seasonality patterns for 5, 15, and 30 years of historical data.For example, in Figure 1, the 15-year seasonal pattern (black line) for gold futures typically sees gold prices rise in January and February, move downward in March, then sideways through July, with a sharp rise in August. Prices tend to decline throughout the remainder of the year, except for December, which can see a sharp rise in the last couple weeks. 
Figure 2: S&P 500 seasonality patterns for 5, 15, and 30 years of historical data.In Figure 2, the current E-mini S&P futures seasonality 15-year pattern (black line) typically sees prices rise from the end of January through the end of April, then lower prices through the end of June. Prices tend to rally in July, with lower prices typically seen in August and September, then higher prices through the remainder of the year.
How do traders apply seasonality to futures trading?
Although seasonality can be a valuable tool for traders, it’s not typically used to identify exact entry and exit points. As such, it doesn’t usually predict the exact duration or magnitude of price moves throughout the seasonality chart. However, it’s best used as a guideline for directional bias and turning points throughout the year. And, of course, there will be times when market behavior does not match its seasonal pattern.
Apply New Strategies to Your Futures Trading Plan
The concept of trading seasonality in the futures market is a powerful one for traders. It can offer valuable insights into potential market moves, and like many other analysis concepts, it’s best used in conjunction with other types of market and technical analysis, including current market conditions, fundamentals, and the economic environment. By understanding and accepting the nuances of futures, traders can better traverse these markets and make more informed trading decisions.
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