Unique April Forex Trading Patterns

Last updated 4/8/2009 9:59 AM ET (GMT -5) 0 Comments - Add your comment

Forex Trading involves high risks, with the potential for substantial losses and is not suitable for all persons. Past performance is not necessarily indicative of future results.

Kathy Lien

Director of Currency Research, GFT

It is a relatively quiet day in the currency market and therefore we take this opportunity to talk about one of our favorite topics, Seasonality. Technical Analysis is based on the idea that price patterns repeat themselves and seasonality is rooted in this very same concept. Seasonality is defined as a pattern that occurs at given times within the calendar and believe it or not, there are quite a number of cases of seasonality in the currency market.

In the month of April, the strongest case of seasonality in forex can be found in USD/CAD. In 7 out of the past 10 years or 70 percent of the time, USD/CAD has fallen in the month of April. Seasonality has been particularly strong in recent years with USD/CAD falling 7 out of the past 7 years and we are actually witnessing this pattern once again with currency pair having already fallen 300 pips or 2.37 percent since the beginning of the month.

Another case of seasonality can be found in the AUD/USD. In 7 out of the past 10 years or 70 percent of the time, the AUD/USD has also fallen in the month of April. The seasonality is not as strong as the one in USD/CAD, particularly in recent years but nonetheless noteworthy.

There are many different reasons why seasonality can occur including a flows, fiscal year end, demand for commodities, import and export trends or even travel.

Trading Seasonality

As you can see from the charts above, seasonality does not hold 100 percent of the time, so the best way to incorporate it into your FX trading is to be simply mindful of it. For example, it may be better to look for opportunities to sell USD/CAD in the month of April than to buy it. Seasonal trades do not always duplicate themselves, which is why trading seasonality blindly by selling at the beginning of the month and buying it back at the end of the month may not always be the best thing to do, but what seasonality does teach us is where the probabilities are skewed.

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.