How to Analyze Seasonality of Stocks – Seasonal Analysis in the Stock Market

Методы и инструменты анализа

The phenomenon where the price of a stock changes during one period every year is the seasonality of the stock. A trader, based on knowledge of changes, gains advantages 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 span of similar events in the stock market can be identified by determining the seasonality of the stock based on investor behavior. Investors’ habits change under the influence of many factors. Seasonality affects the price of shares due to a decrease in the activity of traders due to vacations, an increase in their efficiency at the end of the financial year. Traders’ expectations are self-fulfilling, changing the situation in the stock market. Acting on his own initiative, a stock trader uses charts from previous periods for analysis. The identification of asset price changes pushes traders into action during the same period. A pattern appearswhich is one of the factors that should be considered when working with stocks, but do not use it as a fundamental point to determine the development strategy. 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 profits based on speculation. Low liquidity increases stock volatility. A large investor sells securities, the rest join the deal. The stock market becomes vulnerable to external influences, which disturbs stability. but do not use it as a fundamental point for determining the development strategy. 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 profits based on speculation. Low liquidity increases stock volatility. A large investor sells securities, the rest join the deal. The stock market becomes vulnerable to external influences, which disturbs stability. but do not use it as a fundamental point for determining the development strategy. 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 profits based on speculation. Low liquidity increases stock volatility. A large investor sells securities, the rest join the deal. The stock market becomes vulnerable to external influences, which disturbs stability. In Russia, the main goal of traders is to obtain short-term profits based on speculation. Low liquidity increases stock volatility. A large investor sells securities, the rest join the deal. The stock market becomes vulnerable to external influences, which disturbs stability. In Russia, the main goal of traders is to obtain short-term profits based on speculation. Low liquidity increases stock volatility. A large investor sells securities, the rest join the deal. The stock market becomes vulnerable to external influences, which disturbs stability.
How to Analyze Seasonality of Stocks - Seasonal Analysis in the Stock MarketThe behavior of the snp500 index depending on the season – the so-called September effect, negative growth [/ caption] Another element of instability in the emerging stock market is the dependence of the Russian federal budget on oil prices. Developed countries are service-oriented, so they are less prone to volatile prices for fuel raw materials. The problem lies in the changes in industrial production affecting the stock market of developing countries. The lack of defensive stocks that can stabilize price swings also reduces the stability of the emerging securities market.

Characteristics of the seasonality of the market

The seasonality of the stock market can be traced in the first quarter of the year. Over the past ten years, the price of securities has increased in the first quarter. This is due to the allocation of global funds during this period. Liquidity is boosted by funds from the Pension budget, supplemented by December transfers from the federal pocket. Investor returns declined in the second quarter. The explanation for the trend is simple, is that the new appropriations have been distributed. The first public offers are made at the beginning of the year, profits are fixed, after which a wave of sales falls at the end of the first quarter. Studying the last decade, we can conclude that the liquidity of the third quarter is low. The summer months are a period of vacations, investors go on vacation, the seasonal factor in the market affects the prices of stocks. In September the situation changesa period of revival begins, characterized by new appropriations. In the fourth quarter, the US is setting the tone for the Christmas movement. In Russia, the consumer is becoming more active in the securities market.
How to Analyze Seasonality of Stocks - Seasonal Analysis in the Stock MarketSeasonality analysis for the Dow Jones index since 1896 – September is also red [/ caption] The seasonality of stocks on the Russian market is due to a combination of internal factors and external cash flows. Increased volatility is characteristic of developing structures. Russia will demonstrate a lack of stability as long as the stock market is characterized by a stage of an emerging economy.
How to Analyze Seasonality of Stocks - Seasonal Analysis in the Stock MarketAverage growth on the Russian stock exchanges for the entire period of the RTS since 1995 and the Moscow Exchange since 1997 [/ caption]

How to analyze stock seasonality

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 trading participants: traders, investors, government agencies, pension funds. The purpose of the analysis is to identify the period when the majority of stocks are in demand. The simplest approach is to calculate the average data. The analysis process takes place as follows:

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

The graphical representation of the result obtained in the form of a line demonstrates the price dynamics for the selected period of time. A passing line next to it is the arithmetic mean, it is highlighted in a different color.
How to Analyze Seasonality of Stocks - Seasonal Analysis in the Stock MarketEmerging Markets – MSCI EM Index [/ caption] The chart identifies global cycles. If the average increases, then the demand for stocks increases. For the analysis, purchases should be considered at this stage. If the quotation falls on average, then the demand decreases. In this time frame, we are looking for sales opportunities. In the second stage of the analysis, a company that operates 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. Seasonality analysis of stocks should be based on:

  1. Published opinions of analysts.
  2. Existing trend reports that are popular at this stage.
  3. Technical analysis charts comparing average values ​​with current figures for a specific period.
  4. Analysis of companies one 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 profitability compared to the general index.


How to Analyze Seasonality of Stocks - Seasonal Analysis in the Stock MarketGerman DAX [/ caption] Seasonal price fluctuations must be correctly used to determine the strategy. This indicator is a favorable factor for opening a transaction in securities. By taking advantage of seasonality, traders can compete successfully in the stock market. What you need to know about the seasonality of stocks on the stock market – when is the best time to invest on the stock exchange: https://youtu.be/wDF1-SO5EkE

Practical Examples – How to Look for Seasonal Patterns in Stocks

There are seasonal promotions on 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. Shoppers are active from November to Christmas. Builders are active during the summer. If we consider agricultural crops, for example, corn, then it must be borne in mind 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 deals with shares of companies. Seasonal trends in stock prices develop as a result of events in the commodity markets. The mistake of traders is to misuse the dynamics of the market. It is necessary to consider the price of securities without reference to specific dates.The general tendency of a propensity to rise or fall must be studied for successful action.
How to Analyze Seasonality of Stocks - Seasonal Analysis in the Stock Market Seasonal fluctuations of the stock market using the example of quotes for the SNP 500 index [/ caption] Searching for a seasonal pattern by identifying the average annual value involves the following actions:

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

The plotted graph shows high corn prices at planting, low harvest figures. Another example of the seasonality of stocks is the prices of copper and non-ferrous metals, which depend on the activity of the construction industry.
How to Analyze Seasonality of Stocks - Seasonal Analysis in the Stock MarketCopper price dynamics [/ caption] Seasonal patterns affect the value of shares in hotels and airlines. Christmas shopping stocks are profitable on the eve of the holiday. At other times, the markets are quiet. All information about the seasonality is available to every investor. When you get average annual rates, you need to use them to get benefits. Selling securities during the period of the highest profitability, buying during low activity – this is how a competent trader works in the securities market. For example, this year the dollar is up 1.36 in September. This is due to the seasonality of the currency. This is a traditionally strong month over several years. In America, the fiscal year is ending and the stock market is falling. The statistics have not changed for several years.
How to Analyze Seasonality of Stocks - Seasonal Analysis in the Stock MarketSeasonality 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 the services. Travel schemes are changing due to discounts provided by travel companies. Shopping for Christmas gifts starts from Thanksgiving. Therefore, the trader will identify the high as well as the frequency of positive results when the price has risen over a period of time. Determining the pattern in plus and minus gives a forecast based on the seasonality of the stock. An example for corn with more useful information: from February to April there is a high probability of income – 80%, from October – 10%.
How to Analyze Seasonality of Stocks - Seasonal Analysis in the Stock MarketStocks sold at the beginning of the year and expected to be bought back at harvest time will have a higher probability of success. The seasonality of the stock implies the choice of the frequency of sales. When calculating the strategy, it is necessary to determine the monthly frequency over several years, identifying the maximum and minimum. Begin when the rate is at least 75 percent by choosing a high frequency month. Selling and buying stocks requires analysis to be successful in investing 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 complemented by the identification of the frequency of its manifestation. Patterns affect the final trades. Seasonal stocks are driven by weather and consumer properties that should be considered by both investors and traders.The selection of a portfolio of stocks based on seasonality gives additional perspective to the analysis, gives an advantage when placing emphasis on the stock exchange.

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