hi, just another noob Question
can anybody be kind enough to advise when roughly the various holiday seasons take place in the forex markets?
i understand we should avoid trading during holiday periods as the markets hardly move since the big traders arent moving the markets…
how do we define these days since FX is a global market. do we go by London or US holidays?
i always hear ‘beware of the summer holidays’… i just wanted to get a better idea of when that was? july/august?
thanks guys…
Generally, a national holiday will show up as a BANK holiday in the various FOREX CALENDARS used by traders. How important are national holidays to the worldwide forex market? It depends on which country is celebrating the holiday.
The country with the biggest forex market is the U.K. (approximately 37% of world forex volume). When U.K. banks are closed, there is a measurable drop in world forex trading volume, especially during the London session,
The second largest forex market is the U.S. (approximately 18% of world forex volume). When U.S. banks are closed, world forex trading volume declines, especially during the New York session.
The next 5 markets in terms of size are Japan (6%), Switzerland (5%), Singapore (5%), Hong Kong (5%), and Australia (4%). Bank holidays in these countries have a smaller impact on total world forex volume, but local effects can be significant. For example, a bank holiday in Japan (only) will greatly suppress trading volume during the Tokyo session, but will not significantly impact the London or New York sessions.
The greatest impact from bank holidays occurs between Christmas Eve and about the 2nd of January, when banks are closed in many countries at the same time. Here is a post in which I pointed out the bank holidays occurring in the week between Christmas and New Year’s Day — 301 Moved Permanently
That post shows a filtered page from the Forex Factory Calendar. That particular calendar is easy to filter for bank holidays, which is one of the reasons I use it. But, there are other calendars, including one here on Babypips. Find one that you like.
Often we can trade during bank holidays, if we choose to, even when the banks in our own country are closed. It all depends on our retail forex brokers being open for business. For example, banks in the U.S. are closed on Thanksgiving Day (always a Thursday), but U.S. forex brokers are open for business on that day, because our Thanksgiving Day is just another business day in the rest of the world.
The so-called “summer doldrums” which you referred to do not show up on forex calendars. There is no specific start or end to the “doldrums” period, just a gradual winding down of trading volume sometime around mid-summer, and a return to normal sometime in the autumn.
Lower trading volume during this period wouldn’t matter to traders, except for the fact that it’s usually accompanied by some deterioration in trends. As a result, often during the summer doldrums, [I]some[/I] traders find markets to be fickle and hard to trade.
Bottom line: understand the probable impact of national holidays on world volume (in general), and on volume in the session you trade (in particular). And use extra caution, if you choose to trade during low volume periods.
Thanks Clint for such a detailed answer… the reason i ask is that i have been backtesting a strategy which was averaging 15% return in every month of 2010. except for august where it suffered a standout -50%.
it does make sense what you said about the effects of low volume on trend, looking at the charts in 2010, august seemed very choppy and prices triggered in and stopped out almost every time on all the pairs im using!
the other months were all profitable, which may lead me to believe (for this system at least) that august is what may be referred to as the ‘summer doldrums’… which would make sense since in the UK schools out from the last week of July till the first week of september.
but it definately helps to know that the UK is the largest forex market, so thank you for the information.
Glad to help.
Hey Clint, thanks for the info!
Longtime lurker here, who has enjoyed your posts.
This may be a hard question to answer, but when you say “during the summer doldrums, [B]some [/B] traders find markets to be fickle and hard to trade” is it because of the system they are using?
Specifically, during the Summer, would someone who trades using only price action have an easier time than someone using indicators or vice versa?
What about scalpers versus traders who trade on 4H or longer?
Good questions!
Regarding trading systems, most esperienced traders know that sometimes there are strong trends, making trend-following strategies the weapons of choice. And sometimes markets are “ranging”, requiring strategy adjustments, or even different strategies altogether. In the case of forex markets, we know that forex pairs — when they are trending — tend to trend strongly; but, that’s only about 30% of the time. The rest of the time, forex pairs tend to move about in ranges. Nevertheless, we look for organization (patterns) within this ranging behavior, and then we trade those patterns.
Unlike that clearly identifiable trending or ranging behavior, the “summer doldrums” often seem chaotic and disorganized. The market might look like it’s making a move, but then it just fizzles. Or, the market might appear to be in a clearly defined range, but then it just wanders in and out of its “range”, with no respect whatsoever for the “boundaries” of the range. Sometimes a pair acts like it just can’t get out of its own way. Words like [I]tired[/I], [I]listless[/I] and [I]directionless[/I] come to mind. It’s enough to make you want to take another look at Burton Malkiel’s “random walk” hypothesis.
If you are unaware of the summer doldrums, they can hurt you before you realize that something basic has changed in the market. On the other hand, if you know that this sort of thing overtakes the market almost every summer, then you can prepare.
The doldrums basically represent a lack of participation in the market by a significant number of big players. Some of the big players (the heavy-hitters, if you will) are just absent from the scene. Those who remain tend to trade less heavily than usual, further depressing trading volume. Some small, retail traders (guys like you and me) follow the lead of the pros, and either stay out of the market during the doldrums, or trade lightly and cautiously. Other retail traders fail to adjust, and get burned.
The simplest trading-system adjustment for coping with the doldrums is to shorten up the time-frame that you’re trading. Many trading systems and methodologies can be applied to almost any time-frame, and traders using such systems can adjust rather easily to the choppy and meandering markets typical of the doldrums.
And this leads into your question about scalping. The small momentum bursts that scalpers trade continue to occur during the summer doldrums, despite the fact that the markets seem to be going nowhere. It’s my impression that scalpers are the least affected, of all traders, by the pattern changes that occur in the forex market during the summer doldrums. But, I’m not a scalper; so, you might want to get a second opinion on that question.
About price-action trading vs indicator trading, I wouldn’t make a broad generalization and say that the summer doldrums favor one approach over the other. No doubt there are some ways of applying indicators, as well as some ways of applying price-action, which totally break down when markets become disorganized. Any system, indicator or price-action, which is based on identifying and following a trend, will break down when the trend breaks down. And any system, indicator or price-action, which is based on detecting and trading pattern-behavior within a horizontal range, will break down when those patterns break down.
Okay, my apologies for the rambling dissertation. You asked some good questions. I hope that somewhere in my ramblings you find the answers you’re looking for.
Thanks, Clint, that was very informative.
So it sounds like you’re saying a trend follower using large time frames ( > 4H ) you should probably stay out of the markets around August.
No, I didn’t mention a [I]4-hour time-frame[/I] (or any other specific time-frame). I didn’t mention the month of [I]August[/I]. And I didn’t say that anyone [I]should[/I] (or should not) do anything.
I understand your desire to nail down some hard-and-fast rules for summer trading, but that’s just not possible.
Trading on 4-hour charts may, or may not, be a problem for [I]you[/I], and [I]you[/I]r particular system, and [I]your[/I] trading rules.
The pairs that you trade may, or may not, start to get squirrel-y in August. Or June. Or some other month. Or maybe, this year it won’t happen, at all. The doldrums are sort of like el nino, in that regard. We kinda know when they’ll arrive, and how they’ll behave — but, don’t be surprised when they surprise you.
Finally, what you [I]should[/I] do in any situation — doldrums, el nino, whatever — depends on your system, your entry/exit rules, and the feedback you get from your system’s results. If your system appears to be breaking down in the summer, the problem [I]might[/I] be that change in the market we call “the summer doldrums”. Take a look at that possibility, and let the market and your system suggest what [I]you[/I] [I]should[/I] do.
Clint, you’re right, you didn’t say anything specifically.
I think what I’ll do is test my system out in the Summer but make sure I’m risking only pennies and see what happens.