Learn the times of the year when the GBPUSD and British Pound FX futures tend to do well and poorly, based on historical tendency.
Normally we view charts in chronological order, day after day and year after year. This chart type shows the price path of a currency over time and provide a lot of information for technicians to use.
There’s another way to view currency charts, and that’s to look at them in terms of seasonality.
A seasonal chart shows the tendencies of an asset to move higher or lower, or peak and bottom, at certain times of the year.
Instead of looking at the last 15 years of currency data in chronological order, what if you took each one year period, January to December, and printed it on a transparent slide. Then, put each year on top of each other. Doing this would highlight any period of the year which tends to be strong or weak. Luckily, we don’t need to do that. We can take an average of the last 15 or 20 years to show what tends to occur at different times of the year (also see S&P 500 Seasonal Trends).
Below we look at the pattern of British Pound FX futures which will also aid in trading the GBPUSD forex pair.
British Pound Seasonal Patterns
The British Pound has seasonal tendencies, and we can see them by looking at the following seasonal chart of Pound futures, which are traded relative to the USD.
British Pound Seasonal Chart – 15 and 40 Year
The chart shows the tendencies of the Pound over the last 15 and 40 years. Since the statistics are being calculated over different lengths of time, there are some discrepancies. The longer-term calculation (40) contains more data, while the shorter-term statistic (15) shows what has been happening more recently.
- Over the last 40 years, the GBP is weak from the start of the year until early March. Over the last 15 years, January has had a slight upward bias, but February is still weak.
- In early March the GBP typically bottoms and rises throughout March and April, forming a peak in late April to early May.
- Over the last 40 years, May is a bearish month, while June meanders. Over the last 15 years, May is still weak, but the first part of June has been strong and the second half of June is weak.
- Starting in June, the price action is fairly indecisive through to the end of the year.
- From early July into late July or early August the GBP tends to push higher.
- August tends to be weak.
- In early to mid-October there is an upward bias into the start of November.
- Most of November tends to be weak, but turns higher late in the month.
- December is weak through the first half of the month, but over the last 15 years has shown a tendency to push higher in the last half of the month.
The chart below provides a more general guideline of which months tend to be good or poor for the GBPUSD. As noted above, some pretty big moves start early, in the middle, or late in a month, so the prior chart is more detailed in that regard.
The chart below provides other information. The number on the top of the column shows how often (%) the price moved higher in that month over the last 20 years. The number at the bottom of the column gives the average percentage rise or decline.
While this chart is a more general version of the chart above, it essentially shows the same data, just in a different way.
Things To Be Aware of With GBPUSD Seasonality
Seasonality is not a tool to be used on its own, but rather should be combined with current price analysis to determine entry and exit points.
Seasonality provides us with windows of time where we can watch for trend reversals and feel more confident if we see a corresponding price pattern during the seasonal windows discussed above. For example, we may also feel more confident riding a trend that aligns with the seasonal patterns.
It is important to keep the overall trend of the current market in mind. In uptrends use seasonal low points to buy. In overall downtrends use seasonal high points to get short or to sell….assuming there is a valid trade signal. Don’t fight a current trend just because the seasonal pattern says the price should be going the other way. As can be seen from the second chart, most months are only slightly favored to move one way or the other.
No matter what the seasonal tendency is, always manage risk. In any given year the price can deviate from the tendency, resulting in large losses if you trust the historical data blindly. Use stop loss orders and control position size to manage risk.
Using seasonality is not a requirement for successful trading, it is simply a tool that swing traders may opt to use if they feel it helps them.
By Cory Mitchell, CMT
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