Using Seasonality Carefully

Seasonal patterns and cycle theories are fun to study, but they are weak and unreliable on their own. Here is how to tell a real edge from noise, and sensible ways to use this knowledge.

Signal vs. noise

In our SPY data, the difference between the best and worst average months was about 3%, while a typical month swung about 4.4% either way. That means any single month’s result is dominated by noise. A pattern needs many years of data, a sensible reason and strength after costs before it is worth acting on.

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