Are you switching from chart to chart in search for a trade, and eventually enter a losing position? Are you eager to take revenge after this losing one? Is your nose becoming too friendly with the screen? Taking a break can help you to refocus. Rest is needed in order to allow them to rebuild and become stronger. You need some time to absorb the intensity that you’ve encountered. And you need time to clean your mind as well. It doesn’t matter if you already turned into a professional full time trader or not.

Taking a vacation from trading will definitely allow you to clean your head. But you don’t always need a full vacation: just some time off. And when you’re back, you’ll be more focused and achieve more in less time. And during the hot summer months, the forex markets also slow down, especially in July and August. The sluggishness during this time of year could be a result of low liquidity conditions, less economic releases, as well as a large number of traders vacationing at this time. During these months the large market players go away on their vacations. The lack of market participants means that volumes can drop, ranges can narrow, and volatility can increase due to the low liquidity patches.

So, we are going to look about how can we place a trade during this summer and what can be avoidable in this time.

Why it is the slow markets

Summer is time for vacations, sea, and sunbathing – anything but work. In the summer, people want to travel, enjoy different types of leisure activities, forget about work and emotionally exhausting trading, and spend time with family and friends at least for a little while.

Does seasonal factor affect the assets? Traditionally, trading in summer is considered to be completely different from other periods and has a pronounced seasonal nature:

• Lower trading volumes and impact of institutional capital. Large market makers also want to rest: banks and investment funds let their employees go on holidays; private traders with large capital also prefer to go on vacation.
• Increased volatility. This follows from the previous statement: a decrease in volumes means a decrease in liquidity. A buyer wants to buy an asset, but there are less sellers and vice versa.
• Lower impact of fundamental factors. The publication of quarterly reports of companies has a local impact, which is not comparable with annual reporting and development plans for the next financial and calendar year. Industry demand does not put pressure on commodity markets (mainly oil and gas, whose consumption is reduced in summer and thus does not put pressure on the price)
  

How to Trade When the Forex Markets Slowdown

1. Don’t switch off

The forex market is 24 hour market and it is still active in summer and, although typically quieter, there is still plenty of scope for surprise and opportunity. Remaining switched on to react quickly to any major change in developments could pay dividends for the savvy and attentive investor. So, pay attention to the news which has the potential to disproportionately move markets in slow summer markets.

2. Trade less

The easiest thing you can do during a slowdown is to scale back on your trading. If you had been trading two or three times a week, consider bringing it down to just once or maybe even once in 10 days. Start reducing your frequency of trading from June, so that by July; you are ready for the summer market. Keep an eye on the markets and if conditions are favorable, you could increase your frequency at specific times.

What you should be looking for at this time is quality of your trades, rather than quantity. A slowdown is not the best market condition to open multiple trades. This is also a time that might test your risk tolerance. So, open one position at a time and stick to it. This will not only keep the risk in check, it will also prevent emotional decisions due to the pressure of multiple open positions in a low volatility situation.

3. Set a Clear intraday stop’s

If the limits are narrow, why not use smaller stops? The problem is that low liquidity can lead to sharp price increases that occur in low liquid markets. Prices can fluctuate greatly due to the lack of orders, for no apparent reason. A great example of this type of market is that prices can change quickly in a liquid market when it is open every Sunday. Similar events can occur at summer markets. By placing wide intraday stops, you can ensure that you are not taken out unnecessarily by an unwanted move, only to see price returns in the direction you want.

Of course, if you set wide stops, make sure you lower your level to allow for larger stops.

4. Pay attention to technical levels

The markets still technically behave in the same way and traders will still look to limit and define their risk against key technical levels. Key moving averages to pay attention to are the 100 and 200 period moving averages. Trade ranges are less likely to break in the summer months and the lack of participants, during very quiet times, means that any price breakouts should be viewed with suspicion as false breakouts are more likely during reduced summer trading. This can provide good places to fade the false breaks.

5. Move to a Daily Timeframe

During a slow market, daily charts tend to be more reliable than hourly or even 4-hourly ones. Since trading volumes are low at this time, charts of shorter timeframes might give you false breakouts. With a daily chart, you actually get six different 4-hourly charts, giving you the opportunity to double check any false signals.

Also, remember that during times of low volatility, technical indicators tend to be more sensitive to price movement than usual. The longer this period lasts, the more sensitive the indicators are likely to become. So, even a small move could lead to dramatic signals.

The moment you start looking at trading opportunities because you are bored or craving some action, you are more likely to make mistakes. So, discipline is key at this time. With a daily timeframe, you also get to see how your currency pair is performing across the different trading sessions of the world.

6. Set smaller targets

During the summer months you might consider reducing your targets. Ranges can be limited, so take profit earlier than normal. Say for example you normally took profit at 60% of the daily average true range, you might consider taking profit at 40% of the daily average during the summer.

7. Modify Your Risk-Reward & Check the market moment

Temporarily, while the markets are slow, lower your risk-reward targets. So, if you had been looking at a risk-reward ratio of 1:3, scale it back to 1:2. However, dropping below the 1:2 ratio may also be counter-productive since it will add pressure to grow your capital. For trades that last more than a week, you could look at higher risk-reward.

This is also the time when you should double check to confirm any price action. This will give you the added confidence you need to make a trading decision. This is a time when engulfing bars and pin bars prove to be more reliable than most other charts to confirm price movement. Check the level at which the patterns form. They will provide the right signals, regardless of market volume.

When to take a Break from trading

Sometimes trade can also frustrate by not reaching profit targets because of the narrower ranges. This article also helps you to be prepared for summer months and when to take break for getting better results in trading.

• If you are tired – If you’re a morning person, don’t trade at night. The same thing goes the other way around: a night owl shouldn’t trade early in the morning. Trading when you’re tired isn’t efficient, even if it is the most exciting trade session. Don’t worry, there are enough exciting trade sessions at other times – sessions that will feel more natural to you.
• When the market behavior doesn’t fit you – If you’re into extreme moves, the overlapping European and American sessions on a Friday fit you best. Stay away from the Sydney session. On the other hand, if you prefer range trading, go for other sessions, and skip the most volatile ones. Adapting trading times to your behavior is easier than adapting your behavior. So just rest when conditions don’t work for you.
• News events – Some people like to trade them, and they should stay away from times that are sparse with events, such as Mondays. Why not enjoy a long weekend? On the other hand, some traders prefer to shy away from uncertainty, at times with many simultaneous releases, so they should skip some Thursdays, which usually have crowded calendars.

Conclusion

The summer months don’t affect the FX markets as much as perhaps the commodities, and even in both instances the markets rarely have a drop in liquidity substantial enough to warrant a cause for caution. If we talk about fundamental analysis, its factors not depend on the season. For example, oil, which in spring, autumn and winter is heavily dependent on OPEC policy and the heating season, was under pressure from geopolitical factors this summer due to the trade wars between the USA and China, sanctions against Iran, etc.

If you owned large capital and understood that small traders are reducing volumes in the summer, would you not be tempted to push the quotes in the right direction? The underlying theory behind this summer month phenomenon from a retail trading point of view is actually rather simple to explain too. We like to take vacations away from work with family, friends or even alone.

Happy trading!!!