Crazy Seasonality = Profits?

Crazy Seasonality = Profits?

May 17, 2023

In our last Newsletter, we looked at an incredible seasonality system on the ES futures contract.

The system was literally not believable. At least to me.

But a lot of people swear by seasonality and base their careers on it.

They swear humans take certain actions at certain times over and over again. They say it’s inevitable…like the seasons.

I swear by math, so that’s what I’m interested in.

And, as we saw, the math was amazing.

Here again are the rules and the Equity Curve for this cockamamie system:

Rules:

  • In September of every year, we’re looking to go Short. No other month.
  • In September, on the 19th or the 20th, sell short at the Open of the next bar. Wait, what if the 19th and 20th come on a weekend? Then there’s no trade that year. Crazy.
  • For Longs, we’re only allowed to trade in June, October, or December.
  • And the Close has to be above the 2-period simple moving average.
  • And the Close also has to be above the previous close. In other words, it needs some short-term positive momentum.
  • In June, October, or December, on the 29th or the 30th, Buy at the Open of the next bar if short-term momentum rules are met.
  • Stoploss is $750 per contract.
  • Exit Short trades after a time exit of 14 bars.
  • Exit Long trades after a time exit of 6 bars.

And the Equity Curve on the ES from 1997-2023:

But, again, that looks like an over-optimized marketing ploy. Who cares about a gimmicked backtest?

Well, there’s one way to see if it’s a seasonality truth or dumb nonsense.

We could put it on another index.

With no optimizing.

Surely, these arbitrary rules will fail miserably on another instrument. And the craziness will be exposed.

So, using the exact same rules, here is the Equity Curve on a Daily chart for the Dow Jones (YM) from 2002-2023:

Wait, what?

That looks almost identical to the ES chart. And here’s the Report on the YM:

We see another outrageously good Profit Factor and a miniscule hypothetical close-to-close drawdown of under $4,000.

I’m still skeptical. Let’s do one more. Here’s the EMD (S&P Midcap 400 Futures Contract) with the same rules from 2002-2023:

The way-more-volatile instrument struggled a little during the Dot-Com period and then hypothetically thrived from that point on.

Just like the other two.

Are we just three times lucky?

And, if not, could we make a seasonality portfolio?

We’ll take a look in the next Newsletter.

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It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.