Hey, what's going on everyone, i'm matt, and in this video i want to talk about an important aspect of the stock market. Seasonality. Seasonality refers to a particular time frame, which is influenced by recurring tendencies which produce a pattern. An example of this would be the pattern of increased consumer buying during the end of the year holiday time period.

This seasonal tendency has the effect of promoting an uptrend in the retail sector. Seasonality can occur on many different time frames, traders, investors and other people who are way smarter than i am have identified, statistically back patterns everywhere from an intraday to a multi-year time period. Being aware of these tendencies can assist you in making better decisions with your trades. With that in mind, these seasonal effects are not guaranteed, seasonality can come and go, and there are counter examples to even some of the most robust seasonal patterns.

Because of this, you should think of it as a guiding influence and not a mandate to better explain this concept, i'm going to show you a strategy that i use, which is based off of seasonality. This strategy runs on the s, p, 500 futures market and uses the daily time frame. For those of you who don't know the s, p 500 is an index which tracks the overall market. You can obviously choose to apply the concept of seasonality to your favorite asset and time frame.

Who knows you might be able to find an excellent trading edge? I personally like to know the historic performance of each month. It helps me know if i should be more bullish or bearish when the time comes for this video i will be using the month of june as an example, because that's when this video is going to be released, it will allow you to watch the strategy play Out as it happens as a quick side note, if you enjoy this type of content, hit the like button leave a comment subscribe to the channel. All the engagement lets me know that you're, finding use out of these videos feel free to leave a message. If there's something specific, you want me to cover all right to create this strategy.

I started by simulating what would have happened if you bought into the market on the first day of june and then sold on the last day of june over the past 20 years, and the results were a net loss. This indicated to me that the seasonal tendencies of june favored the bears since i like many of you, enjoy making money. I want to take advantage of this probable downturn. Theoretically, it should be profitable to simply short the market for all of june, but the odds aren't amazing.

We work hard for our money. In my opinion, if you're going to risk it, the deck should be stacked even more in your favor, which is why i sought out the weakest trading period within june to understand how i did this. Let me quickly explain the concept of trading day of the month or tdom. Tdom allows you to compare the trading day within a month to its counterpart in a previous year.

It's not as simple as comparing the results of june 1st 2019 to the results of june. 1St 2018, because sometimes june 1st could be a weekend or a holiday or whatever, which means using the date alone is not an accurate comparison. This is where tdom comes in. Tdom is simply equal to the number of days the market has been opened within the month.

I know this could be a little confusing at first, so this is how it would look for june of 2020 now that we have a way to compare individual trading days with previous years. That's exactly what i did. I tested each tdom in june and intentionally sought out the worst performing day because, as i explained earlier june, favors the bears with all this information. I created a simple short strategy now i'll, explain all the rules of the strategy and then show you how it performed in the past.

This strategy has one entry rule. If it's the 14th trading day of june, you would take a short position. The next time the market opens the 15th trading day. Once you have established a short position, there are three possible exits.

The first possible exit is a profitable close. If the closing price is below your entry price, your trade would be in profit and you would exit the next time the market opens. The second possible exit is your stop loss. You would place a stop at a loss of double the average range over the past 20 days.

The third and final exit would be a max hold time. If you have the short position for five days and there's been no profitable close and your stop loss hasn't been hit. You would cover the position the next time the market opens. At this point, you might be thinking we get it man, the market isn't good in june and it really sucks in the middle of june.

How has your strategy actually done, though? That's a great question: when it comes to trading, you shouldn't arbitrarily believe someone, because they make videos, write blogs or do whatever whenever possible. You should truly test their methodology. I admit i have no clue how this trade is going to do this year, but i can show you how it's performed over the past 20 years on the screen. Now are the results of using this strategy on the s p, 500 futures market? These back testing results are specific to using one contract.

As expected, there were a total of 20 trades because this strategy trades once per june and the back testing started in the year 2000 of those 20 trades 19 were winners and one was a loser, which means that this strategy had an accuracy of 95 percent when Taking into account the gross profit and the gross loss, the profit factor was just under 55.. One indicator of how robust a trading strategy is is its performance on a correlated market. Obviously, you can't expect the exact same results, but you definitely want it to be in the same ballpark. For example.

Here are the results running the exact same strategy on the dow futures contract. As you can see, there were only 16 trades, but 100 of those trades were profitable. Here is another correlated market. The russell 2000 index, similar to the dow this one only traded 16 times but 13 of those were winners.

Two were losers and one was break. Even the profit factor isn't as good as the s p, 500 results, but the fact that the exact same strategy is profitable across three correlated markets and has a high win rate in all three of them allows me to put more faith in this strategy with all That being said, i personally plan on using this strategy on the s p 500 index, simply because i find the combination of the profit factor and the percent profitability to be the most enticing for june 2020. Tdom 14 is on the 18th. This video will be uploaded before that because i think it would be cool if you guys could watch this trade play out in real time.

It might work it might not. I can't make any promises. All i know is that the odds favor this short play, whether you care about this particular short trade or not. I hope you can understand why seasonality is important in the world of trading.

I also want to note that i did not personally come up with seasonality or trading day of the month. People way more impressive than i am recognize them, and i'm just sharing their tools with you. Thanks for watching. I appreciate the support best of luck trading.

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