Why we should swap screen time for leisure time over the holidays…
A very real trap for the keen FX trader during the Christmas break, is the lure of spending additional time in front of the screens in the continued quest for trading excellence. With some more free-time than usual, it’s possible that you become keen to take every opportunity possible to improve your trading skills. We’d like to quickly address a few issues that would suggest this time is better spent with family and loved ones.
Here are some of the key reasons that the charts are best left alone over the holiday period:
1. Low volatility
Low volatility occurs due to reduced participation in the market by major players. What happens as we head into the holiday period is that ranges tend to contract, without the impetus or money of large players markets have a tendency to trade in very tight ranges with periods of erratic movements as large players take cash off the table. This type of price action can be very damaging to your account and is best avoided.
2. Low liquidity
The principal driver of the low volatility is the reduced liquidity in the markets this is due to the larger market participants (Investment Banks and Hedge Funds) reducing their risk exposure during holiday periods and paring back their positions. Most of the large trading desks run skeleton teams to simply monitor market activity as opposed to engaging the market for strategic profit making purposes.
3. Broker’s Act Like Scrooge
It is well-known that Forex brokers much like the famous Mr Scrooge in the Christmas Carol like to keep their profits for themselves. To protect themselves in low liquidity and low volatility they increase the bid ask spread during the holidays. This has two effects it makes scalping the market a very difficult proposition and it also discourages traders from becoming too exposed to unfavourable conditions, but mostly it builds in some extra protection for your broker if you do trade during these periods.
It is of critical importance that you take the time to review your brokers terms and conditions and their trading times over the holiday season so you can see when the spread conditions are likely to be impacted.
4. Unpredictable and Extended Moves
Due to lower liquidity and volatility issues highlighted above the market may seem far less predictable during holiday trading, price may trade for long periods in contracted ranges before breaking the range in sharp moves, these less predictable moves can become extended and very difficult to trade especially if your broker suddenly widens spreads during erratic price action. Often times these erratic moves are corrected in equally erratic fashion and leave less experienced traders stranded and in loss making positions.
5. Take a break and prepare for the New Year
The best recommendation is to embrace the meaning of the festive period and for you to spend the time with family and loved ones. Allow yourself the time to step away from the screens, switch them off and switch off from the markets for a few days and you will actually be surprised at how beneficial this can be for you in renewing your enthusiasm and focus when you return to the markets.
Please be advised, holiday trading is rarely a profitable venture and there is a reason the pro’s don’t get involved in the markets over this period.
If you do have some additional time on your hands over the festive period, why not take some time to review some trading books or some non-screen study. And with that in mind, be sure to check out our very own educational package!