Exploiting Seasonal Patterns and Day-of-Week Effects in Carry Trading

Setup Definition and Market Context

This article explores how to exploit seasonal patterns and day-of-week effects in intraday carry trading. Certain currency pairs exhibit predictable patterns at certain times of the year or on certain days of the week. By combining this knowledge with the carry factor, we can create a effective trading strategy. The market context is a market that is influenced by cyclical and seasonal factors.

Entry Rules

• Timeframe: 4-hour chart.
• Filter: Only take trades that align with the seasonal or day-of-week pattern.
• Entry Trigger: Enter on a pullback to a key support or resistance level.

Exit Rules

• Winning Scenario: Exit at the end of the seasonal or day-of-week period.
• Losing Scenario: Exit if the price breaks a key support or resistance level.

Profit Target Placement

• Method: No predefined profit target. The goal is to capture the full extent of the seasonal or day-of-week move.

Stop Loss Placement

• Method: Structure-based.

Risk Control

• Max Risk Per Trade: 2% of the account.
• Daily Loss Limit: 4% of the account.
• Position Sizing: Based on the stop loss placement.

Money Management

• Method: Fixed fractional.

Edge Definition

• Statistical Advantage: The edge is in exploiting statistically significant seasonal and day-of-week patterns. The expected win rate is around 60-65%.
• R:R Ratio: The R:R ratio is variable.

Common Mistakes and How to Avoid Them

• Mistake: Relying solely on seasonal patterns without considering the current market conditions.
• Avoidance: Always use other forms of analysis to confirm the seasonal pattern.

Real-World Example

• Asset: AUD/JPY
• Scenario: A hypothetical long trade on the AUD/JPY based on a seasonal tendency for the pair to rise in April.