Note from Ashley Cassell, Managing Editor, TradeSmith Daily: Michael Salvatore has been out of town (out of country, in fact) on his honeymoon, so today I'm bringing you some insights from another TradeSmith colleague who I work closely with: William McCanless of Trade Cycles.
William started out as a self-taught trader...
And never have I met any so dedicated to honing their craft. William essentially gave himself a college education in trading simply by learning anything and everything about the markets from the most successful traders who came before him... poring over charts and statistics every day... and from reflecting on all of his own wins and losses.
William came to TradeSmith as a "power user" who was simply deploying our tools for his own personal trades. He also ran a small research service that combined various indicators and algorithms into a novel trading system. William found that TradeSmith was an ideal fit for his swing-trading style... and the rest is history.
Nowadays, Trade Cycles is where William shares what he learned from "the school of hard knocks" with the traders he now mentors today. Every week, we hear from subscribers writing to tell William how he's helped them approach the markets with the right mindset and make money with his swing trades.
Today's article is intended to help you do just that. Read on as William shows you how to use our TradeSmith Seasonality and cycles tools to stay a step ahead of the market trend. |
The Next Turning Point in Markets is Easier to Predict Than You'd Think By WILLIAM MCCANLESS, SENIOR ANALYST, TradeSmith I was in Chiang Mai, Thailand at a pool party when I struck up a conversation with a care-free, rosy-cheeked, Hawaiian shirt-clad British gentleman. He looked to be in his mid-30s even though – apparently – he was approaching 60.
He was one of those guys that looks like he'd be lounging around on a deck chair, rubbing suntan lotion on his chest as the nuclear holocaust was just getting underway.
Turns out, the guy was a multi-millionaire forex trader who had worked with several large institutions in London over the last few decades. He was LOADED. And being a trader myself, we started to talk shop a bit.
Now that he was an independent trader, this guy "printed" upwards of $5,000 a day from his laptop anywhere in the world he happened to be. And he really only traded one or two hours a day.
No wonder he was carefree.
And he made a comment that I thought was perhaps the most succinct explanation of everything I'd learned about the markets... something I had been trying to explain to people for years in very complicated language.
Here's what he said...
"At the end of the day, all the market does is go UP and DOWN. It's not that complicated, mate."
No, mate. It's really not.
Yet the finance, investment, and trading world is filled with overcomplicated nonsense.
My personal opinion is that people make it sound complicated so that normal people like you and me will think we're too "dumb" to navigate it profitably.
So we'll hand all our money over to those "smart" people to do it for us.
But how complicated can it really be, if all this stuff does is go up and down? I Predicted the Markets Would Start Tanking on July 17 of This Year I sent out a trade alert to my subscribers, and I told them to exit all of our long stock positions "as soon as you read this" on July 17. After that, the stock market dropped nearly 10% over just the following 20 days.
But how'd I know? Am I a really smart person?
No. It's because stocks usually go down starting in July into the end of October.
In fact, on presidential election years, the S&P 500 has gone down on average from July 17 to July 24.
Here's a visual of that from our TradeSmith Seasonality tool. The green line is the average of all election years since 1950, and the blue line is the current year.
The two vertical lines show the timeframe I've selected (July 17 – July 24). And beneath that you can see the statistics – the S&P has dropped 73.6% of the time for an average -1.25% return: 
Then on Aug. 6 I went long a leveraged S&P 500 ETF.
Why?
Because on election years between Aug. 4 and Aug. 17, the S&P has gone up 73.6% of the time for an average 1.3% gain: 
Those who bought and sold the ETF when I suggested made 11.9%.
And those who bought my suggested call option on the same ETF locked in 50%.
And guess what? We flipped short again after that.
Why?
Because from Aug. 20 to Oct. 24, the market has dropped 61% of the time for an average -1.76% return on election years: 
Trade Cycles subscribers who took our options trade on the ProShares UltraPro Short S&P500 (SPXU) would have made 37.4%, plus 36.8% on Nvidia (NVDA) put options. Guess what? Last year... stocks did the same thing around the same time: July 16 to Oct. 26.
During that time period last year, the S&P dropped 8.2%, and we went short then, too.
Those who took the trades I suggested could have booked... - 17.1% on Baker Hughes (BKR) puts
- 67.2% on Church & Dwight (CHD) puts
- 14.7% on the ProShares UltraPro Short QQQ ETF (SQQQ)
- 40.4% on Ross Stores (ROST) puts
All while stocks dropped.
And last year – just like this year – there were all kinds of doom-and-gloom headlines.
Lots of really "smart" analysts and traders and shiny-shoed, slick-haired hedge-fund folks who want your money were professing more downside.
Here's a Business Insider article at the time we started shorting... 
By Oct. 25, the articles were getting ridiculous – according to the experts, we were in full-on market crash mode: 
This article from Forbes started off with "There's no ducking it now. The widespread, serious negatives have reached a critical level. There are no cures available except a major reset of investor beliefs, rationale, and expectations."
Psh – whatever.
We were preparing to get long then.
Why? Because all this stuff does is go up and down, mate.
And according to history, Oct. 26 is a turnaround point for stocks.
Take a look for yourself. Here's what happens next on our TradeSmith S&P 500 seasonality chart: 
The statistics are crystal clear. Over the last 74 years of market history the markets have rallied almost 80% of the time starting on Oct. 26 into Dec. 30, for an average 4.3% return.
And right on cue last year, the market staged a face-melting rally on Oct. 26, jumping 15.6% during that timeframe: the biggest gain during this period in 15 years.
Right now, you may recall seeing a number of "market crash" articles in August and September.
But this downside was entirely predictable.
Even in the infamous 1929 crash and 1987 crashes – they both happened between July and October, and they BOTH saw tremendous rebounds at the end of October.
Famously, Paul Tudor Jones was shorting the market prior to the 1987 crash based on the same methodology I use to predict markets.
All he was doing was looking at the data. The market usually goes down at that time, and it was highly correlated with 1929 seasonality.
You can actually see this exact process in this little-known documentary called "Trader."
The pattern was the same even in the worst market crashes.
And if during this bearish period we see some giant crash? We'll make A LOT of money, because we're already shorting it.
Then right when the "experts' are professing the end of the world, we'll be getting long at the end of October.
And I'll do this again next year... and the year after that... and the year after that. This Basic Approach to Seasonality Is How I've Achieved 459% Average Annualized Gains That comes out to 13.6% average gains, with an average holding time of 27 days, across all trades over the last year (winning and losing).
My name is William McCanless – I'm a guy you've probably never heard of.
I've never been to New York City except at the airport for a layover. I don't have any formal financial education.
Over the last 10 years I've been living 10,000 miles away in Thailand, where I've quietly traded the markets and kept to myself.
In fact, I live way out in the boonies surrounded by rice fields and cassava plants with my wife and kid and her family. As a swing trader, I use just a few specific tools, and TradeSmith has the tools I like to use. But after TradeSmith learned how I was using their tools to swing trade the market remotely – they asked me to show everyone how I'm doing it and to also share my trade ideas with subscribers.
And I agreed.
My mission is to show people it's possible to make money when the markets are going up or down, using a few simple tools and rules, in just about 20 minutes a day.
You don't need to be some super smart, highly connected Wall Street finance guru, either. I'm certainly not.
All this stuff does is go up and down, and if you can get some solid data on WHEN an asset usually goes up or down next, it's possible to pull money out of the market every month.
For example, by trading natural gas...
Here you can see that Natural Gas has risen 70% of the time between April 2 and June 15 over the last 30 years: 
So, we bought a call option on the United States Natural Gas ETF (UNG) for a 26.8% gain in 40 days... 
And natural gas goes DOWN 70% of the time between June 13 and July 8... 
So, this time we went short by buying a put option on UNG and made 71% in 25 days... 
Whether it be stocks, indexes, commodities, or currencies – as long as there is at least 15 years of history, it's possible to find these seasonal turning points. And although it's not a 100% guarantee that the asset is going to adhere to a seasonal pattern... it happens often enough and with enough regularity that those who follow this swing-trading methodology have found themselves pulling in substantial profits. I Recorded My Full Swing Trading System for You to Watch Would you like to see if this kind of trading is right for you and your personality?
If so, I'll walk you through my entire system here, including how I find seasonal trades, how I scan for opportunities, and how I qualify trades and manage risk.
Plus, I show each tool I use and HOW I use those tools.
You can watch it for free at this link. I hope you get a lot out of it, William McCanless
Senior Analyst, TradeSmith | 
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