of all the studies i have created, the seasonal projection studies are the ones i look at every day. however, it has taken some time to arrive at a setup that has that kind of staying power on my eyeballs. if you use my sdi_seapro5 study (seasonal projection of 5 seasons) then you'll want to see how i think you'll get the most out of it. i think there's more than a blog's worth of info I want to put out so this will be a series.
step 1: use weekly aggregation:
i like weekly charts for the simple reason that the most reliable technical analysis is drawn from the weekly charts. my focus on this time-frame is based on the idea that institutional investors are acquiring or closing positions over weeks and months, not days, hours, minutes, seconds, ticks. it is institutions that are waiting with bags of money at these longer term technicals for the right price.
secondarily, i find that the seasonality averages drawn from weekly charts are more valid. most years have 52 weeks, so averaging what happened in week 7 of the last 5 years has validity. some years have 53 weeks. a 53 week year comes about because the last day of the year falls on sunday, the default start of a week. now, the seasonality in my study is based on a moving anchor week, usually the current week and the comparison is averaging what happened multiples of 52 weeks ago (e.g. -52,-104,-156,-208 and -260 weeks ago.) a 53 week year is not really a problem. to see this, suppose it is week 53 of 2006, the last 53 week year. the comparison is going to look at week 1 of 2006, 05, 04, 03, and 02. but this is what one would want anyway because week 53 really only contains trading data from the first trading days of the new year of 2007 (nothing trades New Year's Eve except maybe some cold sores ;-)
however, i do have some reservations about the validity of seasonality drawn from daily charts. there are all kinds of issues with comparing price movements on a day-on-year-ago-day basis. first of all, what season length do you use? most u.s. equities have about 251 or 2 trading days year, depending on leap years. however, if you want to look at futures or forex, they both have about 260 trading days to the year because they trade on US holidays. secondly, there might be a day-of-week issue. if it is monday and the bar 251 bars ago is a friday, is that really a fair comparison? i'm not sure. also, imho, actionable seasonality is an annual event, more or less, when it is present at all.
in any case, the precision of seasonality is not such that it would identify the ideal day to enter a trade. it can be +/- two or three weeks. later, i will show how i identify good seasonality setting up and how i time the season.
next up more chart settings ...