Trend Following Forex Charts

I have been bullish on stocks for all of the year 2013, but one asset class that I have not been bullish on is commodities and commodity currencies.

The reason I am not bullish is due to one factor:  the price.   As this daily chart of the Australian Dollar shows, the price, at this moment, is currently going down:

More specifically, the long term trend, as well as the short term trend are down.  Furthermore, the Aussie has recently been hitting new 52 week lows.   That is bearish.

Moving on, the next chart is a monthly chart of the Australian Dollar:

Before entering a trade, I like to have confirmation from multiple time frames.    The above chart shows the price breaking down from a multi-year consolidation area.

Because the Australian Dollar and Canadian Dollar tend to be correlated, one would expect the Canadian Dollar to also appear bearish and that is, in fact, the case.

Below is a monthly chart of the Canadian Dollar:

Four Potentially Explosive Stocks: $ALQAD, $FCEL, $MILL, $PLUG

Here are 4 stocks, all of which I currently own, that look very bullish to me:

Here are some commonalities amongst these 4 positions: 

  • Each position starts off with a 2 ATR stop  (If you have no clue what this means, watch this
  • If this stop loss is hit, I lose 1% of my entire account equity
  • All of the stocks are in long term uptrends.   Never fight the long-term trend.
  • All of the stocks are in short term uptrends.   
  • All of the stocks are at or near 52 week or all time highs
  • They are all rising on hugely expanding volume

Seasonal Stock Market Trends

One of the things that attracted me to the trend following trading world the most was the evidence. Thanks to Michael Covel's original work, I was able to see, going back decades, month by month performance data for a wide range of traders across the world.

You simply cannot find this kind of data for other trading styles such as fibonacci, Gann, or Elliott Wave.  Sure, one prominent Elliott Wave theorist may have called the 1987 market crash, but how has his performance been, month by month, since then?    I have been looking for month by month data for these type of traders and have found nothing.  And I've been intensely studying the stock market for 8 years now. 

Anyway, while there is a plethora of data supporting trend following trading,  there is another trading style that also has significant data to support it:  seasonality. 

I am attracted to hard data, not myths, so when I read the book Seasonal Stock Market Trends, by author Jay Kaeppel,  I was impressed.    There is a lot of raw data in this book, going back more than 100 years, some of which I thought was very statistically significant. 

There are a lot of findings presented in the book above, but for this post, I will focus on just one: the month of December. 

The data suggest that the month of December, or the period between the American Thanksgiving and New Year's Day, is the sweet spot, if you will, for the stock market, producing more gains during this time than any other month. 

To help me demonstrate this point visually, has just come out with a new seasonality charting tool.   The tool is free to use by anyone and can be found here.

Using this tool, I created the following chart, which shows the percentage of the time the Russell 2000 increased during the month of December between 1994 and the present: 

Significantly, the Russell 2000 has increased 90% of the time during the month of December going back 20 years.  Why does this powerful pattern tend to emerge year after year?  I do not know - I am extremely reluctant to link cause and effect in the stock market. 

The next chart shows that the Russell 2000 never closed down during the month of December between the years 1991 and the year 2000:

This season pattern does not appear to be limited to US stocks either.   The next chart shows a similar pattern for the UK's stock market: 

Finally, individual stocks appear to succumb to this inexplicable seasonal force as well, with shares of Google rising 90% of the time during the month of December for the last 10 years.  

As a trend following trader, do I trade off seasonal patterns?  No, I don't.    Can seasonal tendencies be combined with trend following principles in a systematic and profitable way?   Probably yes. 

  • "You can be very promiscuous in your research, but not in your trading."