In my previous post, I've introduced FKLI futures, which is derived from the FBM KLCI that tracks the performance of the top 30 listed companies in Malaysia.
In this post, let's do a seasonal analysis on FKLI futures and find out if there are any seasonal insights from this!
What is FTSE Bursa Malaysia KLCI Futures (FKLI)?
To begin with, the FKLI futures track the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) as its underlying instrument.
The FBM KLCI represents the performance of the 30 largest companies on the Bursa Malaysia Main Market.
Using TradingView to conduct seasonal analysis on FKLI futures
For our seasonal analysis, we'll be using the latest 'Seasonality' indicator on TradingView:
By applying the Seasonality indicator on the chart of FKLI futures on TradingView, we'll be able to spot some interesting seasonal pattern.
The Seasonality indicator shows seasonal trend/pattern from 2015 to present day. Let me share with you what I got:
Seasonal Analysis of FKLI Futures
#1 Which months are the most seasonally positive months for FKLI?
Firstly, since the colour green represents bullish months in the heatmap, by observing the columns (which represent month) with the most green, we'd be able to identify the most seasonally bullish month for FKLI.
With this approach, we will be able to spot the month of October and December being two of the most bullish months since 2015.
The second way is to observe the 'Pos %' horizontal row, which shows the percentage of positive months for respective month since 2015:
December is the most seasonally bullish month for FKLI futures with Pos % being 100% positive every year.
This is followed by October, with Pos % being 67% positive.
From this, we can intepret that FKLI tend to be more bullish in October and December. Traders should have a stronger bullish conviction while trading these months, and be quick to exit the trade if they are taking trades that are against the seasonal pattern.
#2 Which months are the most seasonally-bearish months for FKLI?
Similarly, we could identify the most seasonally-bearish months of FKLI with the same approach:
To start, we will be able to identify September and November being the months with the most red (p.s. Red indicating bearish) in the heatmap.
Next, the 'Pos %' row also indicates that:
September is the most seasonally bearish month for FKLI with Pos % at only 11% positive as a whole.
This is followed by November, with Pos % being 33% positive.
Additional finding: Use seasonality with a pinch of salt
However, I'd also be careful while applying seasonal trend to my decision-making.
For instance, despite November being one of the month with the most bearish tendency, it has displayed 2 consecutive bullish month (green) in 2022 and 2023. As such, my bearish bias while trading FKLI in November wouldn't be as strong.
On the other hand, June has displayed a more consistent bearish seasonal pattern than November as it has displayed 4 bearish month for 4 consecutive years.
The key here is to understand that seasonal pattern is not 100% accurate, and it is a trader's role to decide how best to utilize the data in his/her decision-making process.
#3 Which month is seasonally more volatile than others?
To identify volatility, the standard deviation, which measure of how big (or small) the dispersion of a measurement is around their mean can be used. Analyzing this metric can help traders determine whether a month's changes tend to vary or remain more stable over successive years.
For our scenario, the larger the value of 'StDev' (Standard Deviation), the more volatile a particular month is from its average ('Avgs).
In this case, the months of July and August have a Standard Deviation value of 3.74 and 4.01 respectively, which is larger than the other months.
In other words, this means that July and August tend to experience larger swing in performance from their average. For example, on average, the month of August returned -0.61%. However, in reality, the actual performance from each individual year from 2015 - 2023 showed a big discrepancy from the average (eg. -7.61% in 2015 and 6.25% on 2021).
As such, the average return figure should be taken with a pinch of salt while trading FKLI in July and August, when the Standard Deviation is high.
#4 Which month is seasonally less volatile than others?
On the other hand, a lower Standard Deviation (StDev) would indicate that the performance of a particular month does not deviate as much from the average return figure.
In this example, both September (the most bearish month) and December (the most bullish month) displayed a Standard Deviation value of 2.06 and 1.34 respectively, which are lower than the other months.
This also means that these months tend to have performance that deviates less from their average performance. For instance, on average, the month of December returned +1.57%, with the performance of 2015 - 2023 ranging from 0.07% to 3.69%, implying a smaller discrepancy from average.
With this in mind, trading FKLI in September and December would likely be more consistent with the overall seasonal pattern with less volatility.
Verdict: Use seasonal patterns to better trade the FKLI futures
From this post, it is not difficult to identify reliable (and less reliable) seasonal tendency of the FKLI futures.
With these insights, traders can make more detailed and accurate trading decisions.
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Disclaimers
Any of the information above is produced with my own best effort and research.
This post is produced purely for sharing purposes and should not be taken as a buy/sell recommendation. Past return is not indicative of future performance. Please seek advice from a licensed financial planner before making any financial decisions.
Leverage is a financial tool that comes with its advantages and risks. Please learn and understand both the upsides and downsides of leverage before using it for trading.
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