Systematic Trading Based on Statistics

Trading methods based on statistics represent an unusual approach for many investors. Evaluation of a security’s fundamental merits is not of concern, even though it can of course be done additionally. Rather, the only important criterion consists of typical price patterns determined by statistical examination of past trends.

 

Fundamental considerations such as the valuation of stocks are not really relevant to the statistics-based trading approach discussed here. This is not to say that they are not important as such – one should certainly be aware of the fundamental backdrop. The point is only that strategies based on e.g. seasonality have a different focus.

 

Systematic trading on the basis of statistical evidence will improve the odds of generating profits. Trading based on seasonality does in fact represent such a statistically substantiated trading approach.

 

Seasonality Helps with Stock Selection

Everybody has probably heard about the end-of-year rally phenomenon by now. It affects the majority of stocks during the same time period, namely in the final weeks of the year.

However, many people are probably unaware that individual stocks display unique seasonal patterns as well.

Look at the following seasonal chart in this context. It shows the seasonal chart pattern of  Novo Nordisk, a Danish health care company, over the past 15 years.

 

Novo Nordisk, seasonal chart pattern over the past 15 years. Novo Nordisk exhibits a unique seasonal price pattern.

 

As the chart shows, Novo Nordisk is subject to a particularly strong seasonal uptrend between the end of January and the beginning of March – the time period highlighted in blue. Thereafter, a slightly upwardly skewed sideways trend ensues that lasts until October, followed by an autumn rally.

The phase highlighted in blue is particularly interesting, as large gains are generated in a very short period of time. This rally phase is a unique feature of Novo Nordisk – most other stocks do not display similar seasonal strength during this time period.

 

Following Right on the Heels of Novo Nordisk: Adidas

Individual seasonal patterns can be observed in other stocks as well. The next chart shows the typical seasonal pattern exhibited by Adidas, a well-known German sports equipment manufacturer.

 

Adidas, seasonal chart pattern over the past 15 years. The stock price of Adidas typically rises in the spring and at the end of the year.  

 

As can be seen, Adidas also surges strongly in the spring – the time period is once again highlighted in blue on the chart. As a closer look reveals though, Adidas starts to move up just as the seasonal rally in Novo Nordisk is petering out.

This suggests that it would make sense to sell Novo Nordisk in early March and replace it with Adidas. In this way one can systematically improve the odds of generating profits, buttressed by strong statistical evidence.

Once the period of unusual seasonal strength for Adidas ends, one moves on to the next stock selected by this method, then the next one, and so forth.

 

Conclusion

I am strongly convinced that trading strategies based on seasonal trends in individual securities still offer plenty of unexploited potential to generate outperformance.

 

Charts by: Wolfstreet, Seasonax

 

Edited by PT

 

Dimitri Speck specializes in pattern recognition and trading systems development. He founded Seasonax and publishes the website www.SeasonalCharts.com, which features free-of-charge seasonal charts for interested investors. In his book The Gold Cartel (published by Palgrave Macmillan, see link on the right hand side), commodities expert Dimitri Speck discusses gold price manipulation and modern-day credit excess. His commodities trading strategy Stay-C has won awards all over Europe. He is the publisher of the web site Seasonal Charts as well as of the Bloomberg app Seasonax and Head Analyst of the 90 Tage Trader Letter.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Circling the Drain
      Drain, drain, drain...   "Master!", cried the punters, "we urgently need rain! We can no longer bear this unprecedented pain!" "I'm sorry my dear children, you beg for rain in vain. It is I who is in charge now and mine's the put-less reign. The bubble dragon shall be slain, by me, the bubble bane. That rustling sound? That's me... as I drain and drain and drain." [ed note: cue evil laughter with lots of giant cave reverb]   - a public...
  • Washington’s Latest Match Made In Hell
      Almost Predictable One of the more enticing things about financial markets is not that they’re predictable.  Or that they’re not predictable.  It’s that they’re almost predictable... or at least they seem they should be.   For a long time people believed – and from what we read and hear, many still do – that economic cycles move in easily predictable, regular time periods. All you had to do was create a chart of the up and down waves of your favorite cycle model...
  • The Strongest Season for Silver Has Only Just Begun
      Commodities as an Alternative Our readers are presumably following commodity prices. Commodities often provide an alternative to investing in stocks – and they have clearly discernible seasonal characteristics. Thus heating oil tends to be cheaper in the summer than during the heating season in winter, and wheat is typically more expensive before the harvest then thereafter.   Silver: 1,000 ounce good delivery bars [PT]   Precious metals are also subject to...
  • The Real or Imagined Third Fed Mandate - Precious Metals Supply and Demand
      Fundamental Developments – Silver Looking Frisky The price of gold went up four bucks, and the price of silver rose 32 cents. Silver has been going up in gold terms since the middle of last week, when the gold-silver ratio peaked at just under 87. It closed this week at just under 82 (a lower ratio means silver is more valuable).   Silver: more valuable since last week, both in absolute and relative terms. Just avoid dropping it on your toes – it's still just as heavy as...
  • The Downside of Mindless Investing
      Unexpected Inflection Points High inflection points in life, like high inflection points in the stock market, are both humbling and instructive.  One moment you think you’ve got the world by the tail.  The next moment the rug’s yanked right out from under you.   The yanked rug... [PT]   Where the stock market is concerned, several critical factors are revealed following a high inflection point.  These factors are not always obvious at first.  But they become...
  • The Chairman's Curse - Precious Metals Supply and Demand
      Something Odd is Happening The price of gold went up two bucks, while that of silver fell ten pennies. Something’s odd about how the metals have traded. Back when the market thought that the Fed was tightening, the prices of gold and silver were rising. Silver is now about a buck higher than its Oct-Nov trading range.   A timeline of brief bubble trouble followed by bubble restoration via Hedgeye. It starts in early December (upper left corner) when Santa refuses to provide...
  • Kicking Xi Jinping While He’s Down
      One Great Big Difference On a beautiful midsummer day, roughly six months ago, two distinguished men, of distinguished stature, crossed paths under precarious circumstances.  They are very much alike, these two distinguished men.   Let's confuse him...  [PT]   Both are men of enormous ego.  Both are filled with ambitious delusions for the future.  Both are masters of persuasion.  Both offer a cause and conviction people can rally behind. Both deliver frequent...
  • Shifting Reasons to Buy Gold - Precious Metals Supply and Demand
      Intermarket Correlation Dance Monday was Martin Luther King Day in the US. The price of gold dropped six bucks last week. The price of silver fell 26 cents, a greater percentage. The price of gold can sometimes correlate well with the price of stocks. For example, from April 2009 - July 2011. The price of gold went from $892 to $1,626, while in the same time period the S&P went from 841 to 1,289. The percentages are different — gold’s was 82% and the S&P’s 53% — but they...

Support Acting Man

Item Guides

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Diary of a Rogue Economist