The Monthly Seasonality study is designed by Perry J. Kaufman in an attempt to reveal seasonal patterns in stock prices. The study is designed to be used on monthly charts only. For each month over the past several years, this study calculates the deviation of the monthly price from the yearly average price. In addition, the frequency of positive returns is calculated for each month over the same time interval.
The result is shown on a lower subgraph as a colored histogram. The longest histogram bars represent the months with the highest positive-return frequency. Vice versa, the shortest bars represent the months with the lowest positive-return frequency. Two additional customizable reference levels are shown: by default, these are set at 75% for high frequency and 25% for low frequency.
Combining the seasonal returns with the consistency of such returns over time may help identify the probability of positive return for each individual month. This approach is used in the Seasonal Trading strategy.
|The length of the period on which Monthly Seasonality is to be calculated.
|The minimum high-frequency level.
|The maximum low-frequency level.
|The monthly histogram of positive returns.
|The minimum frequency level to be considered high.
|The maximum frequency level to be considered low.
1. "A Simple Way To Trade Seasonality" by Perry J. Kaufman. Technical Analysis of Stocks & Commodities, September 2019.