Forex Weekly Seasonality Strategy

The seasonality of the Forex Market is a neglected aspect of the operation with legitimized uses on the part of the operators of speculation, and this article tries to highlight some dynamics and to create a strategy apart from the key trends of the Market. Let's discuss a new generation of trading techniques and understanding about a key facet of the Forex Market.

What is seasonality in the Forex Market?

The seasonality of the Forex Market is the tendency of currencies to move around in repeatable and relatively predictable patterns over time. When discussing seasonality, most guides will refer to certain monthly trends that occur during the calendar year. A relevant example is the Japanese Yen's tendency to revalue at the end of that nation's fiscal year. Even so, these patterns are quite difficult to operate since they are somewhat unpredictable and have a reduced legitimized use by the operator in the short term.

Instead we will examine a trend that is much more useful in the short term: The behavior of currencies to set maximum and minimum levels in a weekly context. The relative predictive ease is obviously what interests us as Forex traders; if something repeats itself, in theory it is easy to speculate from such repetition.

Forex Trends and Weekly Trends

Years of reporting on the Forex Market show that currencies will quite likely set their maximum and minimum levels at the beginning and end of the trading week. Intuitively, this makes sense: If a currency is in a fairly consistent uptrend, chances are that its Monday low will hold until Friday and the opposite should also be correct. In addition, the representative currencies of Europe and North America also have the tendency to show great movements in the price towards the end of the week.

Of course this is quite interesting in all its dimension, but the first question we ask ourselves is: How do we use this in our operation?

Parameters of the seasonal strategy in the Forex Market

If we wanted to speculate that Monday's highs or lows could be maintained, we would probably be estimating that the currency will continue in one direction during the subsequent week of operation. There are some ways to do this, but sometimes the simplest solution is best for operating strategies.

Entry Parameter: On Tuesday, establish a purchase order entry order on the Monday maximum level, a sales stop entry order on the Monday minimum level. We will keep these income orders with buying and selling stops throughout the week except that we have already taken long or short positions with the exchange rate respectively.

Stop loss: The order of entry with the opposite stop will take us out of a certain position and establish an operation in the opposite direction. This will be what happens unless an order to the other direction was already activated during the previous week of operation.

Profit Sharing: None

Output Parameter: Close if possible before Friday at any rate.

Results of the seasonal strategy in the Forex Market

If we use this weekly strategy in the frequently volatile and noticeably fast exchange rate to generate trends like the British Pound against the Japanese Yen, the results are somewhat impressive.

Despite notable periods of poor performance, in a hypothetical context the strategy performed fairly well with the GBP / JPY going back to the beginning of 2001. Although past performance is never a guarantee of future results, such parameters Simple and intuitive operations are equally promising in other exchange rates.

Uses for each day of operation

Now that we know of the tendency for currencies to develop their maximum and minimum levels at the beginning and end of the week, we can use this as a class filter for our own trading strategies. If a trend-based trading system is used, an trader may wish to evidence whether a currency has broken its maximum or minimum level at the beginning of the week and adopt an operation in that direction. If an operator uses a more range-based trading system, he can also look for the ability of the currency to set a particular address after a break at the maximum or minimum level at the beginning of the week.

Although nothing is perfect, research shows that an operator is likely to have a better chance of success if it operates with general seasonal trends.