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Calendar Yen Trading
Patterns
As is the
case with other markets such as commodities, forex
demonstrates patterns of “seasonal” behavior which can be
traded. These calendar patterns vary from pair to pair due to
the dynamics of the currencies involved. In this article, the
Yen (JPY) will be the focal point. (Note: The charts and data
in this article come from the research report Opportunities in
Forex Calendar Trading Patterns.)
Monthly Patterns
If one first takes a look at the market from a monthly
perspective, it can be seen that USD/JPY and the JPY-based
crosses have months in which they demonstrate clear
tendencies. Figure 1 outlines this. The graph takes a
month-by-month look at USD/JPY since 1999 (seven years total),
which encapsulates the time since the launch of the year, an
important watershed moment in the forex market. Each bar
indicates the net up month to down month reading. For example,
a reading of +5 indicates that there were 6 up years for that
month as opposed to just one down year, out of the seven.
A quick look at the chart indicates that there are a few
months in which USD/JPY has been strongly biased in one
direction or the other. The prime example is August, the month
in which the market has been down every year since 1999.
During that time, USD/JPY fell for the month at least 137 pips
each time around, with most of the declines coming in at
better than 200 pips. The average has been 320 pips, which is
2.80%.
January and July also jump out. They have both seen USD/JPY
rise in six of the last seven years. The results for July,
however, are fairly unexciting. The market’s average rise has
only bee about 35 pips, whereas the average increase for
January has been nearly 200 pips.
In the case of EUR/JPY, as one might expect, August is a
consistent down month, though there has been one up month
since 1999. The average decline has been over 300 pips.
November has been equally biased to the upside in terms of the
6:1 ratio, but the average rise is only 77 pips. The really
interesting month, however, is December. The market rose every
year from 2000 to 2004. Even though it fell in 2005, the cross
has averaged a 350+ pip increase each year.
As with EUR/JPY, GBP/JPY shows very strong directional
tendencies in August and December with an average drop of over
600 pips in August and an average gain of 435 pips to end the
year. Sterling has an interesting tendency of its own in
September, which is reflected in the cross with JPY for that
month. Specifically, GBP/JPY has risen six out of seven years
at an average rate of nearly 280 pips.
Weekday Patterns
If one were to look strictly at the daily market movements,
there would be very little to suggest that USD/JPY or any of
the JPY-based crosses is anything other than a 50/50
directional prospect for any given weekday. Things get much
more interesting when the filter of the month is applied as
well. Take a look at the table below to see what kind of
patterns show up.
Given that August has a strong downward tendency, it is no
surprise to see that USD/JPY has three strong downwardly
biased weekdays in that month. January, however, tends to be
an up month for the market, but Monday's that month have a
definite negative leaning. On the upside, there are examples
of solid weekday biases scattered all over the place.
These sorts of weekday biases in certain months also can be
seen in the crosses, in some cases in even stronger fashion.
Application to Trading
Trading based on seasonal or calendar patterns can be tricky.
One can never quite be sure when a pattern is going to fail,
or change all together. As a result, to blindly trade them
with no concern as to risk would be quite foolish. Yes, some
of these patterns are very strong. One who sold USD/JPY at the
start of each August and closed out the trade at the end of
the month would have made over 2200 pips in the last seven
years. That's a pretty good take, but there are drawdowns.
Sometimes they can be quite large.
Probably the best use of the type of data presented here is in
its application to bias one's trading. For example, a day
trader could make use of the fact that GBP/JPY has risen 75%
of the time on Tuesday's in August to favor long positions on
those days. A swing trader could look to sell strength or go
with downside breaks in USD/JPY during August with a high
degree of comfort that the percentages are in one's favor. And
of course a mechanical trader can incorporate the calendar
information in to systems.
The point is that data such as the calendar patterns outlined
here should be considered another tool at one's disposal. It
is potentially quite valuable, but certainly not an end in and
of itself.
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The Essentials of Trading
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