Do Seasonal Commodity Trades Make Money?

Basically, I use two types of trading methods (a short-term breakout method and a long-term method). My long-term method is based on seasonal trading patterns. I'd like to discuss the pros and cons of using seasonal trades.

Here is the definition of seasonal trades. Seasonal trades are repetitive price patterns that occur at approximately the same time each year.

Seasonal trades (like other trading methods) are not perfect. For example, some seasonal trades have a tendency to experience "contra-seasonal moves." In other words, they move in the opposite direction of their "normal" seasonal pattern. Obviously, these trades will lose money.

Why do "contra-seasonal moves" occur? They occur because "outside forces" cause these markets to "abandon" their normal seasonal patterns. Examples of "outside forces" are droughts, floods, early freezes, wars, and anything that disrupts the natural flow of the "commodity channel" from producer to consumer.

The good news is that contra-seasonal moves do not occur very often. The bad news is that we never know when an "outside force" will enter the market or how long it will last. However, sooner or later the markets will return to "normalcy" and the seasonal patterns will begin to work once again.

As most traders know, there are a large number of vendors who sell seasonal trades. Some are better than others. However, the major problem with most "seasonal vendors" is the fact that they offer an excessively large number of individual trades. It's not uncommon for a seasonal vendor to include 200 to 500 trades per year in his/her "seasonal package." A trader who purchases this information is overwhelmed by the number of trades. Obviously, it would be virtually impossible to take every trade (unless you had a extremely large trading account).

The trader who purchased the list of seasonal trades is faced with a major dilemma. Which trades should be taken and which trades should be ignored? At this point, most traders simply pick one or two trades and hope for the best. As is usually the case, the trades that were picked end up losing money and the trader quits in disgust. Unfortunately, the trader is now convinced that seasonal trades don't work.

In order to reduce my seasonal trading list, I adhere to a very strict rule which each trade must possess. Specifically, each of my seasonal trades must have an "accuracy rating" of at least 70% over the past 20-years. In other words, these trades have shown a profit at least 70% of the time over the past 20-years (or longer).

By using this "rule of thumb," I have managed to reduce my list of seasonal trades to 25 or 30 per year. Therefore, I generally establish about 2 or 3 new trading positions per month.

Based on my research and experience, I have found that seasonal trades will perform best during periods of moderate economic growth (2% to 3%) and moderate inflation (2% to 4%). It also helps to have a "calm and peaceful" trading environment (no wars, droughts, floods or international crises).

I've also found that "industrial commodities" contain the most accurate seasonal price patterns. Examples of "industrial commodities" include: Copper, Cotton, Crude Oil, Lumber, etc.

In conclusion, seasonal trades are certainly worth looking into, however, seasonal trading methods do require a great deal of patience and commitment.