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Trading and Time Series Analysis

Module by: Ian Akash Morrison. E-mail the author

Relevance to Traders

The crude oil futures market is important to traders, investors, and business leaders. Short-term or "high-frequency" traders trade quickly on positive margin to make money. Medium-term traders tend to follow the business cycle by buying when the market is at a low and selling or shorting when it's at a high. Long-term investors are looking for long-term , reliable growth. Business leaders in the oil industry, on the other hand, are looking at futures and deciding when it's time to increase or decrease production. Management teams in fuel-dependent industries, such a aviation and shipping, are looking to see when its time to buy oil futures to guarantee purchase at some fixed (and predictable) future price.

Energy Trading

All these market participators are looking for the same thing in their technical analysis of the market: patterns. The main patterns that time series analysis goes after are trend and seasonality.

  • Trend is an overall trend of the time series. This can often be found by "filtering" the time series using a moving-window average.
  • Seasonality is the periodic recurrence of a similar pattern in the data. This can be seen in consumer demand for fuel over the course of many years.

Figure 1: Gasoline consumer demand since 2001. Notice the periodicity present in this time series.
Gasoline Demand

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