I get many private IM's and emails about seasonals and spread trading. So I simply wanted to publicly state in a very brief post my own personal opinion about seasonal tendencies and spread trading in the energy, grains, and softs. There are many websites and mentors that promote the use of seasonal tendencies to "time" spread trade entries.
It's no secret that of course commodities like energy distillates, the grains, and softs have strong seasonal tendencies that are reflected in spread pricing and are based primarily upon commercial expectations for future supply versus demand, as well as changes in physical basis and carry costs that can also be seasonal in nature.
My position is that if a trader is going to use past historical seasonal tendencies to take a like position in the futures market, that the most prudent strategy for the individual speculator is to wait for price action to confirm your expectations before you actually take a live position in the market. It's better, IMHO, to give up some trading range in exchange for the knowledge that Commercials are in agreement with you. Conversely, if you are modeling and trading spreads based strictly off of price action, you are a seasonal trader who's fashionably late to the party - albeit an ignorant one in terms of the fundamental drivers moving that market. But in the end, ignorant systems traders can be highly profitable - as can a very astute fundamentalist.
The downside to trading principally on fundamentals in terms of spreads, again in my own personal opinion, is that you are restricted to trading the markets that you are a subject matter expert in - and of course, price action traders have no such restrictions. Price traders model markets, take a position, and either get stopped out or their profit targets are reached.
It's no secret that of course commodities like energy distillates, the grains, and softs have strong seasonal tendencies that are reflected in spread pricing and are based primarily upon commercial expectations for future supply versus demand, as well as changes in physical basis and carry costs that can also be seasonal in nature.
My position is that if a trader is going to use past historical seasonal tendencies to take a like position in the futures market, that the most prudent strategy for the individual speculator is to wait for price action to confirm your expectations before you actually take a live position in the market. It's better, IMHO, to give up some trading range in exchange for the knowledge that Commercials are in agreement with you. Conversely, if you are modeling and trading spreads based strictly off of price action, you are a seasonal trader who's fashionably late to the party - albeit an ignorant one in terms of the fundamental drivers moving that market. But in the end, ignorant systems traders can be highly profitable - as can a very astute fundamentalist.
The downside to trading principally on fundamentals in terms of spreads, again in my own personal opinion, is that you are restricted to trading the markets that you are a subject matter expert in - and of course, price action traders have no such restrictions. Price traders model markets, take a position, and either get stopped out or their profit targets are reached.
