How to analyze the seasonality of stocks – seasonal analysis in the stock market

The phenomenon where the price of a stock changes for one period each year is the seasonality of stocks. A trader, based on knowledge of changes, benefits by identifying the main development trends, identifying market opportunities at a specific time.

What is stock seasonality and how to use it in the stock market

Two main components determine the situation in the stock market. These are financial performance and investor behavior. Analysis of events shows the absence of patterns for a long time. But a short period of similar phenomena in the stock market can be identified by determining the seasonality of stocks based on the behavior of investors. The habits of individuals who place capital change under the influence of many factors. Seasonality affects the value of shares due to a decrease in the activity of traders due to vacations, an increase in the efficiency of their work at the end of the financial year. Traders’ expectations are self-fulfilling, changing the situation in the stock market. Acting on his own initiative, the stock trader uses the charts of previous periods to analyze. The identification of changes in asset prices pushes traders into action in the same period. A pattern appears which is one of the factors that should be taken into account when working with stocks, but not used as a fundamental point for determining a development strategy. The seasonality of shares is typical for emerging markets, which include the Russian one. The depth and stability of investor behavior is characteristic of developed countries. In Russia, the main goal of traders is to obtain short-term profit based on speculation. Low liquidity increases the volatility of shares. A large investor sells securities, the rest join the deal. The stock market becomes vulnerable to external influences, which breaks stability.

How to analyze the seasonality of stocks

When making forecasts, seasonal analysis benefits traders. The trading strategy is based on many years of experience in the stock market. The source of demand is all bidders: traders, investors, government agencies, pension funds. The task of the analysis is to identify the period when most stocks are in demand. The simplest approach is to calculate averaged data. The analysis process is as follows:

• Quotes have been studied for several years.
• The prices of each day are taken for addition.
• Prices are divided by a multiplier.

The graphic representation of the result obtained in the form of a line demonstrates the dynamics of prices for the selected period of time. A passing line next to it is the arithmetic mean, it is highlighted in a different color.

The diagram reveals global cycles. If the average increases, then the demand for the stock increases. For analysis, purchases at this stage should be considered. If the quotation falls on average, then demand decreases. In this time period, we are looking for opportunities to sell. In the second stage of the analysis, a company operating with an advantage is considered. Technical analysis should be carried out for samples where the dynamics of the average indicator is determined by one “strong” year. The analysis of the seasonality of shares should be carried out on the basis of:

1. Published opinions of analysts.
2. Existing trend reports that are popular at this stage.
3. Technical analysis charts comparing averages with actual numbers for a specific period.
4. Analysis of companies a month before the publication of reports. Practice demonstrates the growth in the price of shares of successful firms before the start of the seasonal increase.
5. Sector analysis.
6. Analysis of changes in returns compared to the overall index.

Seasonal price fluctuations must be properly used to determine the strategy. This indicator is a favorable factor for opening a deal with securities. Taking advantage of seasonality, traders can successfully compete in the stock market. What you need to know about the seasonality of stocks in the stock market – when is the best time to invest in the stock exchange: https://youtu.be/wDF1-SO5EkE

Practical Examples – How to Look for Seasonal Patterns in Stocks

There are seasonal stocks in the stock market. Some of them are related to consumer behavior. For example, the tourism business is based on the desire of people living in the north to vacation in the Caribbean in winter. Buyers are active from November until Christmas. Builders are active in the summer. If we consider agricultural crops, for example, corn, then it must be taken into account that it is planted in the spring and harvested in the fall. At the time of harvest, there is always more of it. You can take into account such facts when concluding transactions on the shares of companies. Seasonal stock price trends develop as a result of events in the commodity markets. The mistake of traders is to misuse market dynamics. It is necessary to consider the price of securities without reference to specific dates. The general tendency of the predisposition to rise or fall must be the subject of study for successful action.

Searching for a seasonal pattern by identifying the average annual value involves the following steps:

1. Determination of monthly prices with subsequent fixation of numbers in the table.
2. Mathematical calculation of the average price for the year.
3. Divide the monthly price by the annual average and subtract 1.
4. Calculate the average for each month.

The built chart shows high prices for corn at the time of planting, low figures at harvest. Another example of the seasonality of stocks is the price of copper, non-ferrous metals, which depend on the activity of the construction industry.
Dynamics of copper prices [/ caption] Seasonal patterns affect the value of shares of hotels, airlines. Promotions associated with Christmas shopping make a profit on the eve of the holiday. At other times, the markets are quiet. All information about seasonality is available to every investor. Obtaining annual averages, you need to use them in order to benefit. Selling securities during the period of the highest yield, buying during the low activity – this is how a competent trader works in the securities market. For example, this year in September the dollar rose by 1.36. This is due to the seasonality of the currency. This is traditionally a strong month over several years. In America, the financial year ends and the stock market falls. The statistics have not changed for several years.
Seasonality of currency prices on the stock exchange [/ caption] However, forecasts do not always coincide with reality. It all depends on the behavior of users of services. Travel patterns are changing due to discounts provided by travel companies. Shopping for gifts for the Christmas holidays begins with Thanksgiving. Therefore, the trader identifies the high as well as the frequency of positive results when the price has increased over a certain period of time. Determining the pattern in plus and minus gives a forecast based on the seasonality of stocks. An example for corn with more useful information: from February to April there is a high probability of income – 80%, from October – 10%.
Stocks sold at the beginning of the year, which are expected to be repurchased at harvest time, will have a higher probability of success. The seasonality of stocks involves the choice of the frequency of sales. When calculating the strategy, it is necessary to determine the monthly frequency for several years, identifying the maximum and minimum. Start activity when the indicator is at least 75 percent, choosing a high-frequency month. Selling and buying shares requires analysis to successfully invest in the stock market. The method of averaging values ​​over a certain period of time reveals the maximum prices. The use of indicators of a large value is supplemented by the identification of the frequency of its manifestation. Patterns affect the final transactions. Seasonal stocks are driven by weather and consumer properties that both investors and traders should consider.