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How to Trade Seasonal Patterns in the Nasdaq

June 04, 2019 17:30

With equities having a very positive first quarter in 2019, one of the top-performing indices was the Nasdaq, which posted a gain of more than 25% in the first four months of the year.

But with fears of an escalating trade war between the US and China, not only did we see a subdued performance of the Nasdaq in May, with a drop of around 9%, but it will probably get even worse in the month of June.

The reason: A bearish seasonal pattern during the span of June 5 to June 27, which has developed over the last 19 years.

Seasonal Patterns in the Nasdaq

The key parameter of this seasonal bearish pattern looks as follows: between June 5 and June 27, the Nasdaq saw an average loss of 95.4 points for 15 of the past 19 years.

In the remaining four years, it gained on average only 40.5 points, while the maximum gain was 74 points. By contrast, the maximum drawdown was 116.25 points.

Trade the Nasdaq's Seasonal Pattern: The NQ100 CFD

The interesting question is: how could we trade this?

Here's the plan:

  1. After identifying the profitable seasonal window, sell the market on the closing price of the starting date on June 5 (21:59 CET).
  2. Identify the maximum loss within the seasonal period. Then, have a look at the daily chart and the ATR(14) indicator.
    • If the maximum loss is above the ATR(14) reading, round it up to the next round number and use it as worst-case stop.
    • If the maximum loss is below the ATR(14) reading, use the ATR(14) as your stop-width (rounded up to the next round number).
  3. Look at the average gain of the seasonal pattern, and place the take profit at this distance from your entry point.
  4. If the trade is not stopped out or it does not reach its take profit within the seasonal period, end the trade market on the closing price one June 27.

Looking at current market data, since the ATR(14) in the NQ100 CFD on a daily time frame is currently trading around 170 points, while the maximum loss of the window was 74 points with the maximum drawdown being 116.25 points, our worst-case stop will be placed based on the ATR(14) at 170 points based on our entry price.

Meanwhile, the average gain of the seasonal pattern is 95.4 points within this period. So, after entering the trade on the closing price of the June 5, we would subtract 96 points to get our take profit level.

Source: Admiral Markets MT5 with MT5-SE Add-on NQ100 CFD Daily chart (between February 26, 2018 to May 30, 2019). Accessed: May 30, 2019, at 15:00 GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2014, the value of the NQ100 CFD increased by 18.75%, in 2015, it increased by 7.8%, in 2016 it increased by 8.4%, in 2017 it increased by 30.5%, in 2018, it fell by 1.6%, meaning that after five years, it was up by 77.0%.

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Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

  1. This is a marketing communication. The analysis is published for informative purposes only and are in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
  2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
  3. Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter "Author") based on the Author's personal estimations.
  4. To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
  5. Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures refer that refer to any past performance is not a reliable indicator of future results.
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