After doing some research I’ve stumbled into an article about the summer months of trading, specifically the months of July and August.
It suggests that there is less market liquidity due to the big market moving commercial players not being at their desks due to summer activities, such as holidays and vacations. The effect of this is increased volatility, a lack of market stability, and also an increase in the number of ‘fake’ trading signals that are produced.
This does not go unnoticed by large hedge funds, of who take advantage of the summer activities by forcing price into new trends or break-outs that are favourable to their own trading objectives. It takes a lot less buying and selling pressure to move the markets during these months, and so the hedge funds are suggested to be more successful in their price hunting and targeting tactics.
It seems that the general consensus is that most retail traders get burnt during these months as they do not take the drop in liquidity into account. It’s also suggested that we, the retail traders, should only take ‘premium’ signals and that we should reduce our risk accordingly.
So, this supposed ‘summer’ phenomenon…have you experienced irrational changes in your trading performance during these months, or have you indeed ever heard of this before. I’m interested to hear your views.
I have heard of this but once you focus on price nothing else matters if you are concerned with chopsville during those months use higher time frame charts to keep you out of the whipsaws. Remember keep it simple your results will be greater.
That’s very true and an area for consideration when the time arises to attack these months. Personally, I’m a day trader, never holding positions overnight, so as you can imagine, avoiding market instability is key.
The interesting fact is that I’ve looked at July and August of 2011 for GBP/USD & EUR/USD
Market volume does not drop below the yearly average.
Correlation between the two above pairs does also not vary below the yearly average.
Average Daily Range does not drop below the yearly average.
Yet, the number of false daily signals increases significantly on my own trading approach!
There is a certain inbuilt discrepancy, yes. But as Jez noted, since the market volume does not drop…you have to take a closer look at that article. And given the volatility that comes up with every fiscal news-maker, don’t think you have much to worry about summer or winter vacations.
Yes there is a discrepancy, i kinda treat it like leading up to christmas or thanks giving but extended. its not as bad as Christmas or new years itself. I think its like 70-80% of the action out there, so bigger boys are more efficent at doing what they need to do. There may be a slow grind in a single direction for larger TFs but on smaller time frames there may be more spike to the market if you know what i mean.
I just entered based on candle patterns on H1 coupled with daily bias. Once the market went against me by up to a 100 pips but I always made a profit.
Than I lost a huge amount in 4 consecutive trades, which was abnormally high for how I was trading up till than. Had to re adjust my trading and had to admit that an SL is one of the most important things.
It just goes to show that though the underlying principles might be the same, market does change, even minutely over a given time period.
So what might have worked a week ago might not fair too well this week.
It all depends on how much screen time a trader has and how quickly he adjusts to the changing conditions without going against basic rules.
