Predictable Trends in Trading
Anyone that has traded the forex markets or invested in stocks for several years will know that there are certain trends that tend to occur more often than not.
For instance, if we take the Christmas period as an example, the forex pairs will tend to move a lot less over Christmas and New Year because of significantly reduced volumes.
In addition, stocks tend to do well in the weeks running up to Christmas, and indeed up until the New Year because of the feel-good factor and the fact that traders want to close their books in profit for the year in order to get their bonuses.
In this article, however, I want to specifically talk about two common trends that tend to occur over summer because you could potentially use this information to boost your profits or limit your losses.
Summer Sell-Off in May
In England there is a common expression that is often used in trading circles – ‘sell in May and go away’ as well as the lengthier historic version – ‘sell in May and come back on St Leger’s Day (in September)’.
This basically refers to the fact that traders and bankers will often sell their stocks and go off on their summer holidays, and the markets often reflect this trend because they will often fall during the summer months on lighter volumes, before bouncing back in September and October.
Of course if you look at historic data, this trend doesn’t actually occur every single year, and you certainly shouldn’t make any trading or investment decisions based on this particular saying, but you will generally see lighter volumes in the markets, and it’s amazing how often the stock markets do actually fall over the summer months.
2019 looks like being a year that this holds true because both the FTSE 100 and the Dow Jones fell sharply in the second half of May, and the sell-off currently looks like it is going to continue well into June as well.
So this is one trend that you should at least be aware of if you ever find yourself taking long positions on stocks or actively buying stocks in May or June.
Lighter Trading Volumes in the Forex Markets
Another similar trend that you should be aware of if you are a short or medium-term forex trader is that volumes will often drop off quite considerably over the summer.
As a result of this, you can expect the average daily trading ranges for all of the major currency pairs to be considerably smaller than the previous trading months.
This can have a big impact on your trading, particularly if you are a short-term day trader, for example, because a currency pair that may typically move around 100 points per day, may only move 60-70 points per day during June, July and August.
Therefore it becomes a lot harder to make money when the markets are less volatile, and it is not made any easier by the fact that the prices swings that do occur on lighter volumes are often hard to predict.
Final Thoughts
Hopefully you can see that the summer months, ie June, July and August, are definitely not the best months of the year to be trading the forex markets because volumes are lighter and the major currency pairs tend to trade in smaller ranges every day.
It is not necessarily a good time to be buying stocks or opening new long positions either because volumes are also lower here as well, and because of this and the fact that many traders are away from their desks quite a lot during this time, the stock markets will often fall over the summer on lighter volumes.
As mentioned earlier, there are sometimes exceptions to these trends, but you should at least be aware of these potential trends every year when the summer months are approaching.
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