Time tends to make people’s minds change. The result is that the market behaviour is constantly changing. While some months can be amazingly profitable, others can be slow, or volatility could completely mess up your earnings. Trend changes like those are hard to predict, but there are some common conducts that tend to follow certain patterns.
Although many traders would advise against focusing on how seasons affect trading, there is some truth to that belief.
Before going any further into this article, we must specify what winter is.
The definition of winter varies according to the methodology you follow and your physical location. For simplicity’s sake, we clarify that we mean the traditional winter season as commonly know through media, from December to February.
That is because, for those on the opposite side of the Earth, this article would mean “Hot To Trade FOREX During Summer”.
How Does The Market Behave During Winter?
Right out of the bat, winter months are not good for Forex traders.
They are known for practically “forcing” investors to take some time off just like other workers do.
There are many issues regarding this time, and they are mostly related to the holidays that happen during the season. Specifically, we mean Christmas and New Year’s Eve.
If you’re interested in knowing why is this a bad month, then:
- Volatility and Liquidity Remain Low.
The holidays mean that most of the bigger traders of the market, such as banks or hedge funds, step down and settle for some vacations.
Since these players provide with a huge part of all the operations, all the liquidity they bring is gone. With no particularly big demand for trades, they naturally lower and it becomes much more difficult to partake in trades.
And, with them out of the game, volatility also steps down due to a lack of significant interest towards a specific currency pair.
Low liquidity brings low volatility and vice-versa. The end result is a “sleepy” market until the “tigers” are back.
- The Market Becomes Unpredictable.
With low liquidity, an unexpected trend occurs. Prices can swing wildly from time to time without previous notice.
That is, in part, thanks to traders trying to set their own prices randomly. Unfortunately, this brings an even lower wish to trade and kills liquidity even more.
The worst part about these swings is not that they are incredibly hard to predict, but that they are completely impervious to trading software.
Automated trading software and strategies are extremely dependant on strict parameters programmed by the traders. When prices can skip 15 or 20 pips in a second with no telltale sign, no automated advisor can help you.
- Brokers Can Get Shady.
This is not a secret to anyone. Brokers react to the low amount of operations by raising their spreads to compensate for the lost income.
So, not only are trades less common and more dangerous, but they are automatically more expensive regardless of the prices involved.
The only good side about this is that these increases tend to mark the beginning and end of the winter trading season.
How To Trade During Winter.
You have read all of the previous issues, yet you still want to trade. Well, then you will need all the advice you can get.
You may offset these issues by…
- Adjust Your Stop-Loss.
You need to adjust your stop-loss orders to make up for the lack of volatility. However, you need to be completely aware of the fact that the sudden price spikes can surpass even your most trusted stop-loss order.
- Adjust Your Expectations Accordingly.
You can trade any time you want; that is the main feature of FOREX trading. It remains true for winter season.
However, what you should keep in mind is the context.
This is not a season where you are likely to earn a lot of money, so do not stress yourself when you see that everything looks mostly dead.
Another expectation that needs adjustment is what you look forward to earn per trade and how long you leave one open. That is mostly to offset the likelihood of price drops surpassing your stop-loss orders.
- Choose a Good Forex Broker.
Choosing a reputable broker will go a long way in helping you dodge the spreads increasing during the winter season. The more popular, the less likely they are to play around with spreads.
Still, that does not mean that you can enter trades blindly. Always be mindful of the spreads before starting.
- Take This Time To Relax.
In the end, there is not much you can do besides trying to make a small extra income during these months.
This is the perfect time to lower trading on your priorities list and focus on yourself for a while!