I’m pretty sure you can find a pattern in basically anything that repeats itself. If you look for it long and hard enough you will spot one. Many have dedicated time, effort and money to investigate the seasonal trading patterns and dependencies that occur.
As summer is traditionally the vacation season for many, there are patterns that occur in trading as well especially in the currency markets. Majority of institutional traders in Europe would leave (according to statistics August is the most preferred month for vacation). And since institutional traders are some of the biggest market movers, you can expect a lower volatility and strange moves during the holiday season.
Before we continue any further let’s have a look at the commodities markets as they are the ones where we can spot very distinguished trends and patterns. Big retail store companies would experience increase in their stocks during Christmas period. Why? Many people would go to the malls and big stores to buy gifts etc…
Grains (DBA) tend to be cheapest around harvest time as this is the time when the supply is in abundance. Natural gas is most expensive during winter because the demand is the highest.
However when it comes to currencies market we don’t see these dependencies so sharply. The forex market is huge and it is influenced by so many factors, that it is hard for just one such pattern to shake the market (like NFP for example, which repeats itself every month and moves the market with hundreds of pips).
The summer slowdown, just like the Christmas one, are two repetitive patterns that you will observe if you look back in the history of the charts.
The Summer Syndrome
So how do you know that summer is here and it is maybe a time to step away from the markets and charts?
Trend Duration – the first thing you will start noticing is the length of the trends. They will become shorter and shorter.
Trend Strength – trends become weaker on top of being shorter in duration.
Failure Rate – patterns start to fail more often. If you rely and trade candlestick or chart patterns you may notice a higher failure rate. This is perfectly normal as the market doesn’t have a strong direction to follow.
Traditional Techniques – elliott waves and other traditional and well known trading methods like fibonacci for example might start to produce less reliable signals than other times.
For years this summer pattern was knows to appear during July and August. However in the past 10 or 15 years the summer vacation pattern accents mainly in August. This makes it well noticeable and the shift is attached to the increased number of spot forex trading and raised level of competition for clients on institutional level.
The Solution
The most obvious solution would be to leave the charts alone yourself. Go to vacation or catch up on your favorite books and hobby for a month or two. Charts and markets are no where to go. Remember that not being in a trade is also a trading decision. Instead of beating yourself up why you are loosing and why your strategy is not working, just step away.
For those who really need to be involved during the summer slowdown try to adjust your strategy according to the Market conditions. One thing you can do is take longer term positions (read H4 and above). The H4 chart is the bridge between intraday and longer term time frames. It provides a perfect solution to those who want to trade on daily basis but it is still accurate enough as it represents longer term cycles and forces.
Why NOT trading is important?
Since the forex market is opened 24/5 the only time we have left not trading is the weekend. Many however would use the weekend to analyze their performance during the week, check out the trading journal, what went how etc… There is also time dedicated to preparing for the next trading week.
All that might take just an hour or 3 hours for you but it keeps you in the game. By that i mean your mind is not 100% relaxing from the pressure that trading brings with it. More or less you end up with almost 24/7 mental pressure. And here comes the question – when do you take vacation?
It might be up to your vacation destination – some places are best to be visited during certain periods of the years. Or maybe tickets are less expensive. Perhaps your spouse can take days off work only in April? All these are relevant but if it is entirely up to you to decide when August and December are the perfect months for a vacation.
You are a trader and you have to follow the trend in this case as well if you want to have an edge – if I can put it this way. Not that you are going to miss a whole lot if you leave for 2 weeks in February.
What’s your experience during the holiday seasons? Do you trade during these times or you lay low? Share your comments below!
Yours,
Vladimir
What an excellent article this is! I have been a trader for about 6 years. I am a learner more than a trader. I read almost everything that I come across as far as Forex trading is concerned. However, I do not remember reading any article like this. This is one helpful article Valdimir. Thanks a lot.