BY: Jeff Niles
The futures markets are a living, breathing creature made up of all the different participants who ebb and flow into its financial atmosphere. The role of the individual in the make up of the market as a whole causes certain patterns in the behaviour of price action. One such behaviour is the idea that the e-mini markets operate in a very cyclical pattern. There is a time for buying and a time for selling. A time for trading and a time for staying out of the markets. It is up to each trader to find the market rhythm and listen to it.
The e-mini markets are constantly in a series of cyclical rotations. There are intraday, daily, weekly, monthly, and yearly cycles. All of theses cycles effect one another and one of the toughest aspects of short term trading is identifying which cycle has the largest amount of impact on the market during a given period.
If a trader chooses to recognize only one of the markets many cycles it should be the seasonal one. Changing weather conditions mean human beings schedules and lifestyles will be interrupted. This fact means the markets will have a different mood and tone through the trading period. Recognizing the different characteristics to look for and trade off of during these changing periods can mean an increase in traders' chances for success. So what are the different things to look for in each of the four seasons?
Cold, barren, and unforgiving are the terms that come to mind when thinking of the markets during the winter months. Big money and fund managers slow initiating new positions as the temperature around the country drops. Trading is slow and often range bound for months at a time. Short term traders should focus on minimizing risk and be patient for quality set ups. It is very easy to over trade in range bound markets.
New life brings new trades and spring time is often referred to as the heart of the trading year. Major participation and good volume means large trading ranges and plenty of opportunities to establish solid positions across the markets. Good traders will earn the majority of their trading profits for the year in the 4 months of spring. Knowing the conditions to expect ahead of time allows traders to concentrate and focus heavily on their trading during this time to ensure they get the most out of it.
Capital preservation is the major headlines during the summertime. Trading during the summer, especially intraday trading, is often a test of trader's patience. Volume and volatility come to a screeching halt as institutions and major funds put the brakes on going into the warmer weather periods. July and August are the worst as traders take advantage of the slow markets to go on vacation which results in even slower markets. Do yourself a favour and don't get too anxious to trade during the summer and you can save yourself a lot of commissions.
As traders come back from vacation the markets are lifted with a sense of optimism. Trading during the fall is much like spring trading. Ranges are often blown out and serious moves that would have taken weeks during the summer months can happen in days. Going into the end of the year traders who are up on the year can afford to take on extra risk and traders with a net loss are desperate to turn it round before the new year. Focus on quality set ups and you can find success in the fall markets.
Seasonal market cycles have a large role to play in price action on the monthly, weekly, and even daily charts. Traders need to understand what type of market they are trading in order to get the maximum out of their specific strategy. Scalping the slow periods and letting winners run during the major seasons can exponentially increase a trader's bottom line. Learn to understand what cycle the market is in and you will become a better trader.
Enjoy trading without the stress. Enjoy making money with easy to follow set ups. Over trading can lead to serious account meltdowns. E-mini Trading
Disclosure: No Positions