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How to trade seasonal patterns in forex, today: the EUR/CAD

September 04, 2019 10:00

While the complete escalation of the trade dispute between the US and China is dominating the news headlines around the world, Euro is presenting itself in a quite volatile mode.

This is most likely due to the upcoming ECB rate decision on September 12. In general, market participants expect a dovish European and that for a good reason: after the remarks from Finnish ECB member Olli Rehn, who said in an interview with the Wallstreet Journal on August 15, that "it is important that we (the ECB) come up with a significant and impactful policy package in September", chances are still very high that significant monetary stimulus from the ECB will be delivered in one or the other way, leaving the Euro vulnerable to a drop on a broad front.

In fact, it wouldn't come as a surprise to us if we get to see an anticipation of such Euro weakness which could be especially interesting in the EUR/CAD.

Why? Well, in the EUR/CAD a seasonal bearish window opens between August 28 through September 6, which developed over the last 24 years, putting the advantage in currency pair also on the short-side.

Seasonal Pattern in the EUR/CAD

The key parameter of this seasonal bearish pattern look as follows: between August 28 and September 06, EURCAD saw an average drop of 180 pips for 19 of the past 24 years.

In the remaining five years, it gained on average only 89 pips, while the maximum loss and maximum drawdown were 168 pips.

Trade the Seasonal Pattern: the EUR/CAD

And now the key question: how could we trade this?

Here's the plan:

  1. After identifying the profitable seasonal window, we sell the EUR/CAD on the closing price of the starting date on August 28 (22:59 CEST) at 1.4739.

  2. We 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).

    >Since the Daily ATR(14) is currently at 95 Pips while the maximum loss was 168 pips, we set the stop at 1.4739 + 170 pips = 1.4910.
  3. Look at the average gain of the seasonal pattern, and place the take profit at this distance from your entry point.

    >Since the average gain was 180 pips and our entry price was 1.4739, we place our take profit level at 1.4560.
  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 on September 06.

Source: Admiral Markets MT5 with MT5-SE Add-on EUR/CAD Daily chart (between June 15, 2018, to August 30, 2019). Accessed: August 30, 2019, at 07:00 GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2014, the value of the EUR/CAD fell by 3.7%, in 2015, it increased by 6.9%, in 2016, it fell by 6.1%, in 2017, it increased by 6.6%, 2018, it increased by 3.6%, meaning that after five years, it was up by 7.1%.

Check out Admiral Markets' most competitive conditions on EUR/CAD and start trading from as low as 0 pips. To test Admiral Markets EUR/CAD offering in combination with the described strategy above register for a free demo account today and experience the live market risk free!

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