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What are Seasonal Trends in the Forex Market?
When you’re trading forex for a living in the United States, you tend to start your trades with a choice. That choice is pro-dollar or anti-dollar. This choice precedes nearly 90% of all currency transactions in the US forex market. This is because the US dollar is the only real-world currency.
It drives exchange rates, and a lot of traders analyze the future direction of the dollar. They either use fundamental or technical analysis, or they use a combination of both. The question here isn’t, “Is forex trading profitable?” but “Who is going to reap the profits?”
That being said, one of the most subtle influences on these trades is the season.
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There are specific seasonal changes that come about every year that impact the forex market. When trading forex, it’s the key to profitability to keep track of these changes. Otherwise, small profits won’t always turn large and large profits will probably waste away.
Seasonal Changes in Prices
When you’re learning trading forex for a living, you need to understand that seasonal changes occur every year. They become more apparent when you filter out the noise. That means looking at the price of a currency and how it fluctuates throughout the year. Only through that lens does a pattern emerge for every currency.
It may not be apparent, but it does become so when you filter out all other stimuli. However, there is also a danger of complacency when taking this approach. As you filter out external factors to see a pattern, you expose yourself to those external factors.
Read: https://tradeforexsecrets.com/trade-the-forex-results-800-profit-in-five-hours/
Seeing a pattern emerge shouldn’t automatically lead you to neglect other factors. History does repeat itself over and over. That is a fact. Ask any historian, economic or otherwise. However, there are plenty of historical outliers to show that this doesn’t mean you should neglect other factors. The housing crash of 2007-08, the Great Depression, and the Dot Com Bubble can prove this.
Examples of Seasonality
These are some of the clearest examples of seasonality in the forex market. They aren’t proof of a pattern that always repeats, though. They happen often enough that you can make them a basis for your forex trading strategy.
USD/JPY July and October Spike
One prominent example of seasonality emerges when you’re learning trading forex for a living. It’s the USD/JPY spike in July. In 68%of, the samples surveyed, July ended with the USD/JPY index higher than when it started. The exact reason hasn’t been conclusively identified.
A similar spike can be seen in October. The same results have been identified, with no conclusive reason.
However, these short term spikes are valuable as a basis for forex trading. The answer to “Is forex trading profitable during this time?” may be more likely a yes. However, that doesn’t mean external factors can’t upset this trend.
April: Negative Month for USD/CAD
One of the most durable cases of negative seasonality is April for USD/CAD. In April, it’s only 25% likely that the USD/CAD pair will closer higher than it opened. This makes the month of April extremely dangerous to trade-in with this pair.
Seasonal changes may subtly influence the foreign exchange markets, but they can’t rely on every time. Patterns that emerge may have one or many economic drivers, but they remain to be identified. Trading forex for a living involves the recognition of these patterns, as well as their negation in strategies. This is because forex markets are not beholden to any one pattern or rule—the economy shifts as they shift.
