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Ringing in the new with SLV

Jay Kaeppel
2021-12-28
Silver has demonstrated a tendency to rally early in the new year. This trend has been especially strong since 2004. In this piece, we take a closer look at historical performance and consider a lower-risk alternative to trading silver futures.

Key Points

  • Silver has demonstrated a tendency to rally early in the new year
  • This trend has been especially strong since 2004
  • Traders still need to focus first on risk management

Silver into the new year

The chart below displays the annual seasonal trend for silver futures. 

Our seasonally favorable period extends from the close on Trading Day of Year (TDY) #249 through Trading Day of Year #33 in the new year. In 2021-22 this period extends from the close on 12/28/2021 through 2/17/2022.

The chart below displays the annual $ return for silver futures during this seasonally favorable period.

The chart below displays the cumulative $ return for silver futures during this seasonally favorable period. 

There are two key things to note:

  • This trend is by no means a "sure thing" from year-to-year
  • Significant declines are possible, and a trader must have a plan for mitigating risk

The table below displays the relevant performance numbers.

Note that the median loss was only -$738. That's the good news. The bad news is that the largest loss was -$32,950 (1981).

The table below displays results since 2004.

The one glaring problem with all of this is that most individuals are not well suited to trade silver futures. So, let's consider an alternative.

SLV ETF

SLV (iShares Silver Trust) is an ETF intended to track the price of silver futures. Traders can buy and sell shares of SLV just as they would shares of stock. While this approach lacks the leverage of futures trading, it makes an investment in silver more accessible to many individual traders.

The chart below displays the year-by-year % return for SLV ONLY during our seasonally favorable period.

The chart below displays the growth of $1 invested in SLV ONLY during our seasonally favorable period.

The table below displays SLV results during our seasonally favorable period since SLV started trading in 2006.

To fully appreciate silver's performance during the seasonally favorable period, the chart below displays:

  • The growth of $1 only during the seasonally favorable period
  • Versus the growth of $1 during all other trading days

Since SLV started trading, SLV has:

  • Gained +213% during seasonally favorable periods
  • Lost -51% during all other trading days

What the research tells us…

Silver tends to rally early in the year; however, results can vary widely from year to year. While results have been consistently favorable in the past roughly 18 years, there is no guarantee that this degree of favorability will continue. Silver futures offer the potential for significant gains but also catastrophic loss for the unprepared and/or under-capitalized trader. The SLV ETF offers traders an unleveraged way to play the long side of silver.

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Risk Disclosure: Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

Testimonial Disclosure: Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.