We typically look at forex charts in chronological order, day after day, week after week, and year after year. The typical chart describes the price trajectory of a currency (pair) over the years and can provide a lot of information for technicians to use. However, there is another way to view currency charts, and that is to view them seasonally.
So what are Forex Seasonality Patterns or Forex Seasonal Charts? For our purposes, seasonality is the tendency of a currency to hit a minimum or maximum at certain times of the year.
Instead of looking at the currency data for the last 30 years in chronological order, what if you took each year (January to December) and could put each year on top of each other? The 30 years are then averaged and set to a starting value of 100 to provide a line showing how the currency performs on average between January and December, over the last 30 years (below, we will look at the averages of 5, 10 and 15 years). ). Will the average show a seasonal pattern of GBP / USD where it generally rises in certain months or decreases in others?
Next, look at the Pound futures, but keep in mind that since Pound futures trade relative to the US Dollar, we can use the patterns seen in the futures market to trade the seasonal patterns of the GBP. / USD. Therefore, this information can be used in both the futures and foreign exchange markets.
GBP / USD Seasonal Patterns: 5, 10 and 15 Year Seasonality
In fact, there are consistent GBP / USD seasonality patterns, and we can see these patterns by looking at a seasonal chart of sterling futures. These seasonal trends can be used to find the right times to trade the GBP / USD currency pair (or Pound futures).
The seasonal chart shows the pound’s trends over the past 5, 10, and 15 years. Each average provides a different line, and this is important to understand about seasonality:it is an average, not a rule. In a given year, the price may deviate from the seasonal trend and traders should not fight it.. However, we can find common ground that occurs in the three averages:
- The pound typically bottoms out in early or late March and then rises in late April.
- From the beginning of May to the middle of May it is usually a bearish time.
- Usually a bottom forms again in mid-May, we see a bullish move in early August.
- Prices usually peak in early August and decline until early September.
- After October, our averages diverge and the short term (5 years) does not provide the same information as the longer term seasonality averages (10 and 15 years), making seasonal trends less concise and less reliable during This weather.
- The averages realign to form a high in early November and the price slides in mid to late November. After this, the averages diverge again.
Seasonality is not a tool to use on its own, but must be combined with price pattern analysis to determine entry and exit points. However, seasonality provides us with time windows where we can keep an eye on trend changes and feel more confident if we see a price pattern indicating a reversal during the seasonal windows provided above.
It is important to take into account the general trend of the market. In uptrends, use seasonal lows to buy. In general downtrends, use seasonal highs to short or sell.