Usually we look at forex charts in chronological order, day by day, week by week and year by year. A typical chart shows the price path of a currency (pair) over many years and can provide a lot of information for use by technicians. However, there is another way to view currency charts and it is to look at them seasonally.
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So what is a seasonal forex chart, or a seasonal forex chart? For our purposes, seasonality is the tendency of a currency to go down or up at certain points in the year.
Instead, look at the currency data for the last 30 years in chronological order, and what if you take it every year (January to December) and you can bet every year on each other. All 30 years are then averaged and set to an initial value of 100 to give a single line showing how the currency operates on average between January and December over the last 30 years (below we will consider the averages of 5, 10 and 15 years). Will the average show a seasonal GBP / USD pattern when it usually gets higher in certain months or lower in others?
Consider futures per pound below, but note that since futures per pound are traded against US dollars, we can use the patterns observed in the futures market to trade seasonal GBP / USD models. Thus, this information can be used in both the futures and foreign exchange markets.
GBP / USD Seasonal patterns – seasonality 5, 10 and 15 years
Indeed, there are constant models of GBP / USD seasonality, and we can see these models by looking at the seasonal futures chart per pound. These seasonal trends can be used to find convenient times to trade the GBP / USD currency pair (or futures per pound).
The seasonal chart shows the development trends of the pound over the past 5 years, 10 years and 15 years. Each average is different, and this is important for understanding seasonality –this is an average value, not a rule. In any year, the price may deviate from the seasonal trend, and traders do not have to fight it. However, we can find common features that are found in all three averages:
- The pound usually forms a bottom in early to late March and then moves higher in late April.
- From early May to mid-May the time is usually bearish.
- The bottom is usually formed again in mid-May, we see progress above in early August.
- The price usually peaks in early August and decreases in early September.
- After October, our averages diverge from short-term (5 years), which do not provide the same information as with long-term average seasons (10 and 15 years), making seasonal trends less concise and less reliable at this time.
- Averages are adjusting to form a peak in early November, and the price will drop in mid-late November. After that, the average values diverge again.
Seasonality is not a tool to use on its own, but rather should be combined with a price structure analysis to determine entry and exit points. Yet seasonality does give us time windows where we can observe reversals of trends and feel more confident when we see the price pattern that points to the reversal during seasonal windows presented above.
It is important to consider the general market trend. According to trends, use the seasonal minimum for purchases. In general fall trends, use seasonal highs to cut or sell.