Us Driving Seasonality
The easiest trade in gasoline and energy carriers is generally based on seasonality from early February through May and is traded long.
Seasonality is based on the annual growth and decline cycle of the average car mileage in the United States. In other words, the average car mileage increases during the spring and summer months, and accordingly, gasoline consumption increases from winter to summer.
Source of the chart: Downey M. Oil 101
Let’s buy gasoline futures at the end of January and hold them until the end of May each year:
Chart of seasonal gasoline purchases from 1989 to 2021
It looks good, but as we know from the previous article, this backtester does not show results uniformly due to the lack of data normalization.
We’ll enter the final profits for each year in Excel:
And then normalize them:
The data is shown on a linear scale for ease of perception. In reality, the account grows exponentially from 100% of the original money:
According to the R^2 indicator mentioned in the previous article, the result is 0.91 versus 0.97, which shows excellent stability of the premium produced almost every year.
And so, we have another great trade, backed by strong fundamentals, with a 10.4% CAGR and 79% win rate over the last 33 years. Due to the high volatility of energy carriers, I do not recommend investing more than 50% of your account balance in this stock. The return per trade in this case is 5.2% with half the risk.
In general, correct weighing and combining an array of portfolio positions is an extremely important topic that I cover in detail in my course. For example, by a fairly simple measure, the profitability of this trade gets even better:
R^2 = 0.99 winrate 94%
I would also appreciate if you shared your ideas or questions about this article. Please leave a comment below this article or contact me here.
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Good luck with your trading and see you in the following articles!