How to use seasonality in stock market

Trading is based on finding the opportunities to open buying or selling transactions. The catch is when is the best time to do it. A good way of recognising the right moment to enter the trade is by identifying trends and repeatable patterns. I will tell you something more. There is a season for different kinds of goods and stocks.

What is a seasonal stock? How you can use seasonality in your trading? Read this article and you will learn more about this topic.

Seasonality in stock market

A stock represents some kind of industry. Many companies earn profits seasonally. And stock prices are following better and worse days of the industry. So you can watch seasonal trends and act accordingly.

Stocks cycles

There are a few different cycles that stocks often follow.

Seasonal stocks are the ones that show an increase in sales during certain times of the year. Like swimming suits. You can expect they will be bought in the biggest amounts during spring and summer. However, you must realise there are also other factors for consideration. You should review financial and earnings statements of the company over the years to find the best moment to trade.

The time of the year does not have great impact on non-seasonal stocks. For instance companies making t-shirts. The demand for this product is more or less stable through the year.

Some stocks react to general condition of economy. They are known as cyclical stocks. They are strong when the economy is good and suffer when the economy goes through worse times. Imagine big jewellery companies. They might sell a lot when people have money to spend, but when there is an economic crash, expensive jewellery is a product they can do without.

A price of non-cyclical stocks does not depend so much on the economy. They are also known as defensive stocks. The price is stable because the demand for the product does not change when the economy goes down. For example manufacturer of aspirin. This is something people need in good and bad times as well.

Stocks trends

Observe the behaviour of the markets through the year. This will give you a better view of when it is profitable to open transactions.

Often stock prices increase before some seasonal holidays. Christmas, Thanksgiving or Fourth of July, to name a few.

Also, December is a special month because it is the end of the year. You can catch some good trading occasions then as plenty of investors want to get rid of losing positions before the calendar year closes.

What to invest in

To decide what seasonal stock to invest in you have to research the market and price behaviour and use your common sense. With time you will see some seasonal regularity and you will know when is the best moment to buy and to sell.

For example, oil has proved its seasonality over years. The price usually rises during vacations when the cars are used more frequent and on longer distances. You will make the highest profit when you buy before season and sell before the season ends.

Always make a research before entering the trade. Even seasonal stock behaviour may be different this year. The market changes constantly and you can never be sure 100% what future will bring.

Spring seasonal investments

Spring is a season of hope for new beginning. The cold winter is going away and we look forward to what will grow in a new season of the year. This is the time when products related to agriculture peak. Check generators, outdoor equipment or lithium which is utilised in batteries for all kinds of production.

Summer investments

Most people take some time off during summer. They go on vacations and so products and services related to traveling are more wanted. Also, because this is time of high temperature, it might be worth to check companies offering air conditioning.

Autumn stocks

This is the time when the school starts that is why you should search for the products school related. Also, cars, jewellery and luxury goods seem to be more sought after during autumn.

Stocks for winter

This is the coldest season of the year. Search companies providing heaters, comfort solutions as well as winter clothes manufacturer. Moreover, an increased demand for tea and coffee is usually observed during winter months.

Conclusion

Consider including seasonality into your trading strategy. It may turn out this will help you to make a good profit. You will learn when is the best time to buy or sell a certain kind of stock.

After some time you will be able to notice recurring patterns and correlation between regular events and stock prices.

Every month brings different events and has its own specific. Nevertheless, January, July and December are the months when the highest performance is often recorded. In January retailers post their sales figures and they may caught the eye of new buyers. December is the month of Christmas holiday and the end of the year. And July is a month of holiday optimism, but also preparations for the school shopping.

The worst months in stock market are, according to many, June and September. Remember, there are opportunities all year round. It is up to you to find them.

So do your research, check historical data and prepare your plan. Even in seasonal stock there is always some portion of risk.

As always, I would be glad to hear from you. Leave a comment on seasonal stock market trends below.

Wish you success!