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We are all familiar with the concept of seasonality, for example, we are all accustomed to rising prices for fresh vegetables in winter or rising fuel prices during severe frosts, but few people know that similar patterns exist in the Forex market.

Seasonality is a phenomenon where price experiences similar and predictable changes during the same period each calendar year. These changes may occur during a particular meteorological season, crop season, quarter, month, holiday period or off-peak period. Seasonal analysis is characteristic of the commodity market. For example, there is a seasonal trend in the demand for heating oil, which increases prices when demand rises and decreases when demand falls. There is a seasonal trend in the supply of soybeans (associated with planting, growing and harvesting) that influences prices by creating patterns.

Seasonality also occurs in other markets, such as stocks, indices and Forex, usually for fundamental reasons. Identifying seasonal patterns and using them to forecast trends, identify trade ideas or identify a trading opportunity can give a trader an edge. Note how seasonality itself can vary and change over the course of different years. Whether used alone or in combination with other methods, seasonal analysis is an undeniably useful tool.

Author: Roman Shiredchenko