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Do Commodity Seasonal Trades Really Work?


Commodity seasonal trades have been around for a long time, but the original intentions of these trades has become very misunderstood since the late 1990s. Professional traders used seasonal tendencies as a solid fundamental reason for making their trading decisions. As this strategy was widely marketed by Jake Bernstein in the late 1990s, the small investor interpreted it as a get rich quick scheme and the seasonal trade took a radical turn.

About Seasonal Trades

Commodity prices typically reach peaks or lows during certain times of the year. This is due to production cycles around the world and buying cycles of commercial users. There will be times during the year when the supplies are at their highest and demand is at the lowest. Prices are typically lowest when supplies are at the highest. These are general trends, but there are obviously more variables that determine prices in the market.

A seasonal tendency should be used as part of an overall trading strategy or process for selecting trades. Experience in trading a particular market for a long period of time and understanding the market characteristics really helps when using seasonal trades. A fundamental trader might feel prices have moved to low and the seasonals might confirm a trading decision if they indicate a market usually bottoms at this particular time.

Seasonal trades don’t work every year and sometimes the timing is early or late in the markets for a seasonal move. In fact, a market might not show any particular bias to a seasonal tendency in many years. Seasonal tendencies are certainly a good trading tool to use, but some people got the wrong idea on how to trade them from one particular source - Jake Bernstein.

The Jake Bernstein Effect

Jake Bernstein wrote a book and heavily marketed a trading system based on seasonal trades. The book listed a number of key dates for each commodity and the success rate for each trade. On the surface this type of trading made sense to the novice trader and it was fairly easy to implement. The problem was that things just aren’t that simple in the trading world.

The book basically outlined specific dates when you buy and sell a commodity. The holding periods typically lasted a couple weeks. The past history of the trades looked great, as many were 80 to 100 percent successful in the past. That sounds great, but the way the trades were derived is where the logic doesn’t hold up.

Computer programs came into play. They went back in time and found all the combinations of successful trades during certain dates. The after-the-fact stats looked great. However, if you screen all the possible combinations of dates and markets for the last ten years, you are bound to come up with many combinations of trades that were successful in history. A good argument could be made that these are completely random numbers and they have no bearing on future successful outcomes.

Needless to say, Jake Bernstein caught a lot of heat from the industry regulators. He claims that there was nothing wrong with promoting seasonal trades. I have to say that I don’t necessarily have an issue with the content of his book and this could just be considered another trading tool someone could use - after doing some research on it. Unfortunately, the book had some marketing to it that made it sound like an easy way to trade commodities and make a lot of money.

That is really the basis for how seasonal trades might have a somewhat tainted reputation. The commodity seasonals are actually a good tool to use in your trading, but not to use by itself. I certainly wouldn’t blindly buy on a predetermined day and sell on a predetermined day. However, seasonal trends can act as a good barometer to determined the timing on trades. Professional traders don’t really use specific dates for seasonal trades. Rather, they look for overall patterns during certain times of the year.

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