What is seasonality?!
 
Early on in my investing/trading life I noticed tendencies in the stock market. In particular I noticed trends in 1 specific sector. The transportation sector of the stock market (Airlines, Railroads, etc.) Simply by looking at a chart I noticed that this sector of the stock market usually tended to be weak from the summer months (July/August) until the early fall (September/October). At first I thought this was just a coincidence, but it wasn't until many years later that I found out that this was a small part of a reoccurring seasonal trend. 

 Now before I continue any further, let me point out that seasonality is NOT the end all be all. If these seasonal trends happened every year, then every participant who followed these trends would be a billionaire.  Unfortunately they DO NOT happen every year, but they do happen a majority of the time.


Here's how equityclock.com explains seasonality: 


"Seasonality refers to particular time frames when stocks/sectors/indices are subjected to and influenced by recurring tendencies that produce patterns that are apparent in the investment valuation.   Tendencies can range from weather events (temperature in winter vs. summer, probability of inclement conditions, etc.) to calendar events (quarterly reporting expectations, announcements, etc.).   The key is that the tendency is recurring and provides a sustainable probability of performing in a manner consistent to previous results."


Their explanation is spot on. Now, can one make a living just from following seasonal patterns in the stock market?! Some will say yes and some will say no. I'm more in the yes camp, but I feel its important to be prudent and have some common sense when investing/trading based partly off seasonality. One should not mortgage the house and invest on margin because of a seasonal pattern that they think will repeat every year. Seasonal patterns DO NOT happen every year. The more prudent thing to do is to include seasonality as only a small part of an investment/trading strategy and NEVER NEVER NEVER use margin.  As a wise man once said, "If you never invest on margin, then you can always sleep comfortably at night..." 


Thank you for reading!





Disclaimer: Nothing in this post should be taken as investment advice. Securities mentioned in this message can lose value and essentially go to $0. Under no circumstance did this message constitute a solicitation to buy or sell a security. The creator Robert Lesnicki, family, or other associates may hold a position in securities mentioned in this post.  It's ultimately up to the reader to make a decision on an investment.