Seasonality is the key that makes it easier for everyone to identify the opportunities to improve their business. In statistics, most time series show a yearly cyclic variation, defined as the repetitive and predictable movement around the trend line.
It is obligatory to take in consideration how seasonal trends affect stock prices. A business that has bigger sales in some seasons seems to be making strong gains during those seasons and strong losses the rest of the year. If this is ignored, an investor may make a mistake, by buying or selling securities based on its activity at hand without taking in consideration the seasonal change.
In every economy, the cooler the winter is, the bigger the demand. This means there is a seasonal variation in market prices. With a smart timed trade, this seasonal pattern can make a lot of profit.
Commodities are tangible—such as metals and minerals—which means prices fluctuate influenced by winter. Ground conditions and temperature can affect materials.
Sadly, weather is unpredictable, the more unstable the winter is, the more commodity prices will change.
In winter, demand tends to be higher, but it depends. People use more heating oil and natural gas in the winter, but, they drive less, so less gasoline is required.
The winter volatility in oil, natural gas and gasoline commodities is, in part, due to the fact that this resources are taken out of the ground in the spring and summer months and are later stored, so they can be used in the fall and winter months.
Due to the freezing conditions of winter, is not the ideal time to be extracting energy. So, if winter is colder than expected, more reserve energy must be used. If this continues for a long period of time, energy prices might spike because there will be less energy in storage.
A long winter can also cut the growing season short, speaking of wheat and corn.
When winter is colder than normal, the demand for oil increases, because homes need it to maintain their internal temperatures. The contrary if winter is warmer than normal, the demand for oil decreases and less gas will be needed.
Abnormally cold weather can also affect oil production. If the temperature is really low, extracting operations cannot function at full capacity. Also, poor traffic conditions due to snow can cause problems in oil transportation so it cannot be delivered to consumers and storage facilities. Crude oil has a freezing point between -40 and -60 Fahrenheit, if the temperature drops to these depths, oil and gas supply and demand will be affected.
As for lead, even if it is a metal commodity, it is considered an energy commodity since it is used in batteries. Battery producers increase their demandright before winter expecting the energy demand to increase, which causes prices to elevate earlier in the year up until the end when battery companies are stocked up.
Gold and silver are metals that are not affected as much by the seasonality.
There is a seasonal trend called the Santa Claus Rally, this theory dictates that some stocks have risen the last years in the days between Christmas and the first days after December 31st. The speculated reasons for this can be optimism during holidays, short-sellers being on vacation and year-end tax related portfolio adjustments.
Investing in seasonal trends may be indicated for chartists with a short-term disposition, who are seeking for a short-term profit based on the perception of a market change before selling their own shares. Investing based on season trends can be loaded of transaction costs, and increased risk, but if done right it can be very profitable.
It’s important to take in consideration that seasonal trends are not permanent. What works in 2018 might not work in 2019. That is one of the reasons why it’s indicated for people looking for quick gains, it is not a secure long-term strategy and it is full of risks.
Therefore considering climate change, winter months are not predictable weather wise.
Seasonal stock investing is all about understanding repetitive patterns in prices to assess when to buy, and when to sell a particular stock. It is based in the concept of “history repeats itself”, which might be true sometimes, but not always. Therefore it is a personal choice if the risk is worth it.
Winter stock prices don’t depend only in the fact that it is winter, but more on how cold that winter is, or how warm, which is a very unstable factor to rely on. They are just odds, if more accuracy if wanted, there has to be taken in consideration everything else that is happening in the market. In the right context, seasonality can be effective.
By analyzing how winter affects trading in general, seeing how FOREX can be affected is made much easier.