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This video is a part of our course on Event Driven Trading Strategies: https://quantra.quantinsti.com/course/event-driven-trading-strategies
Welcome to this video lesson on seasonal event-driven trading strategies.
After completing this video, you will be able to explain seasonal or calendar trading strategies and list its examples.
What is a seasonal/calendar trading strategy?
It’s a trading strategy which systematically exploits patterns in financial markets which are dependent on specific calendar dates. It may be an event which occurs on precisely the same day in a month. It could even happen in a month in a year or even the same hour in the day. These events may occur often or only a few times during the year.
Human life is full of periodical events. Nearly everybody gets up from the bed at the morning, goes to work/school, goes shopping etc. Part of daily life is random but a significant part is scheduled.
It’s the same on financial markets and seasonal/calendar anomalies try to capture profit from such repetitive events.
One of the first documented seasonal strategies is the so called “Halloween effect”. It is also called the “Sell in May” strategy. This strategy is based on the historical underperformance of stocks in the “summer” months. this is the six-month period starting in May and ending in October. This underperformance is in comparison to the “wintery” six-month period from November to April.
In this strategy, you sell your equity holdings in May (or at least, the late spring). You will then wait
and invest again in October/November (or the mid-autumn). This strategy probably originated
in Great Britain.
In earlier times, the traders, salesmen, analysts, etc. left London for a summer vacation and returned in september. The advantage of this strategy is that since the event is scheduled, we can prepare for it beforehand. We can do our analysis before the event happens and then set up our position. It greatly simplifies the strategy execution.
If the event is repetitive, then we have a long history of event’s dates and price reactions. We can systematically back-test trading strategy based on past events. But what are these scheduled events which we can base our trading on?
There are many repetitive events that have a significant impact on market prices. It can be various periodical economic announcements, public events (holidays, elections etc.). It could also be events of the more technical nature (expirations of options, rebalancing of indexes etc.)
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What Is Event-Driven Trading?
man looking at several monitors
An event-driven technique entails placing professions based on market-moving events, ranging from incomes statements to natural disasters. Because volatility often tends to increase during these times, energetic traders have a chance to produce a higher profit than they would or else be able to in range-bound markets. This volatility can be determined in a variety of various methods, ranging from beta coefficients to day-to-day quantity versus average daily quantity.
After determining possibly volatile circumstances, investors have to establish the direction of any future cost activity and also the very best approach to capitalize on that movement. These factors are largely figured out by checking out numerous technical indications, graph patterns, or other forms of technological analysis. As an example, an outbreak because of favorable profits could coincide with an ascending triangle pattern, which often anticipates a specific rate target.
Event Driven Trading, my way of trading forex
When I started with trading I was captivated how cost acts. At the beginning I was quite sure that price steps fairly randomly, however after checking out couple of graphes it was clear that there is something a lot more. Currently after attracting hundreds trend lines as well as straight levels I currently understand (a lot more) concerning what makes cost relocations and shapes candles.
As a technological trader you need to choose a couple of strategies.
You can either come to be professional of few tools or concentrate completely on graphes as well as trade any tool on any kind of possible period cost is only point you are interested with. I choose second alternative. I think it provides more trading chances.
Practically every single time you can find your ideal setup and you do not need to wait on it for several hrs/ days as you might trading only one/ couple of instruments.
Regrettably there is one large problem with this approach. It’s almost impossible to see that big number of graphes.
Even if you have ultra broad screen you won’t have the ability to plainly see more than 20 tool (and also what about a lot of times frameworks?). Also attempting to stay up-to-date with every instrument on couple of durations will certainly cause significantly low concentration in addition to trading effectiveness. You’ll jump from one chart to review for any opportunity as well as after couple of hours you will certainly find it where it’s not. Your mind will certainly offer you anything to finish this search and finally switch to reduced rate.
To solve this issue I made a decision to create robotics that scan several markets on many timeframes (presently 32 tools on 15 durations) and also let me understand only when something interesting take place. By „ intriguing” I mean occasions like pinbars, being rejected of assistance/ resistance degrees, marabouzu and so on. Now every 15 mins (that the most affordable timeframe robotics check) I get set of events to validate.
What is forex trading?
Forex, or foreign exchange, can be described as a network of customers and sellers, who move currency in between each other at an agreed rate. It is the methods by which individuals, companies and central banks transform one money into an additional if you have ever travelled abroad, after that it is most likely you have made a forex deal.
While a great deal of fx is provided for practical functions, the substantial bulk of currency conversion is undertaken with the purpose of making a profit. The quantity of money transformed each day can make price movements of some money extremely unstable. It is this volatility that can make foreign exchange so eye-catching to traders: producing a greater possibility of high revenues, while likewise enhancing the risk.
It might seem also evident to mention, yet an organized chart is easier to trade, especially when you recognize the interaction between deep predisposition and also danger belief and also how it is playing out on the graph. A disorderly chart shows perplexed considering what is fundamental deep bias and also what is danger view. Profits, if you can’t read the graph and envision what the big gamers have to be believing, you shouldn’t attempt to trade it, even when one of the most advanced of indicators are offering you the go-ahead. Clear thinking leads to lucrative professions.
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