As we’ve now entered the final two weeks of the trading year, many of us will slow down our trading, particularly if we’re manual day traders we’ll consider simply downing tools for a week or so. If we trade on a fully automated basis, then we’ll maybe consider disengaging our expert advisor over the holiday period.
One of the key reasons we may consider adjusting our trading plan over the holidays, is due to the lack of liquidity in the FX market. This lack of liquidity, which is simply caused by a lack of trading activity, as many institutional level traders effectively down tools, for an approximate two week holiday period, can have a huge effect on our trading outcomes. It must also be noted that the spreads we pay are directly related to the liquidity and the volume of trades placed into, for example, an ECN environment. Therefore spread costs may also increase slightly during holiday periods.
As we are only too aware, our FX markets react primarily to the economic calendar releases, and during the holiday period those calendar events slow down dramatically and this year the Xmas day and Boxing Day holidays fall on Monday and Tuesday. But there are still calendar events released, even on Xmas day and Boxing Day bank holidays, which can effect market behaviour. Therefore, when our FX markets eventually fully reopen, we can experience a catch up effect; investors, analysts and traders quickly get back up to speed with releases over the holiday period and adjust their trading positions and as a consequence price adjusts accordingly.
During any normal trading week we can clearly see trading volumes reduce on Friday afternoons and evenings, unless traders are anticipating a major calendar event result being published. Therefore this year we may witness a slowing down over an extended five day period, from the Friday to the Wednesday morning after Boxing Day. But we must bear in mind that many institutional level traders will take the whole week off, they may not return back to their trading desks (virtual or physical), until Sunday 30th December, then we have another holiday, New Year’s Day, on the Monday.
Now whilst there’s a valid argument to be had for not day trading during holiday periods, there is theoretically no reason why swing traders and or position traders, can’t simply maintain their positions during the holiday periods. Particularly if you’re trading using what are often referred to as “zero accounts” with your broker; accounts which charge no swap fees, have no overnight charges, etc., then there’s no reason why we have to close our positions.
The most likely outcome, based on holiday period analysis over many years, is that the majority of markets simply remain in their current trends (if a current trend exists) and or move sideways. Therefore, if you’re a swing trader and a huge percentage of retail traders are (they’re also part time) then history is on your side, assuming you’re in the market and don’t want to relinquish your current positions.
However, as we know, were trading is concerned, history never repeats it rhymes, therefore we may be advised to still monitor any swing trades we have, perhaps adjust our stops, our risk and money management and think carefully if our signal alerts us to take, or perhaps end any trading opportunities during the holiday period.
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