Trading Futures/Forex During The Summer Doldrums, Is It Worth While?
During the summer months, trading generally slows down. Many investors go on vacation and there are just fewer traders around to buy and sell. At best we can say that the stock market, over all, is "uninspiring". Can you still be profitable trading futures during these months? Read on...
Lets start with the basics, first. What are the summer doldrums? When you look back at historical trends of monthly stock returns, some months clearly stand out, They outperform others. In fact, there is even an old stock market saying, "Sell in May and Stay Away". The overall cycle of the Market for the last 40 years has been fairly consistent. A strong January, a weaker February, a strong March and April, a weaker May through August. September, the Market gets its footing back. Finally there is a strong October, November and December. Seven out of the last ten years, during the May to October period, actually show negative stock market returns. In fact, what often kicks off the end of the year is the day after Labor Day when everyone returns from vacation. This is the norm not the exception. And the stock market is all about traditions and being normal.
Professional traders understand the "sell in May and go away". So often there is a big sell off of stocks in May that leads to the summer months. With such a history in the stock market, can we successfully be trading futures?
Actually trading futures in the summer months, although there is lighter volume, is actually good day trading. We are not interested in holding positions for months on end, even days on end. As day traders, we are only interested in being in positions for a few minutes. So the fear that the Market will come down and stay down is not a consideration. When the stock market is negative, even heavily bearish, it is often a good day for day traders. Why? Because investors sell faster on fear than they buy on greed. When the stock market is going down, investors feel they have to get out of their positions, at all costs, fearing that they will lose what is left of their portfolio. When the stock market is going up, investors take their time about buying, not feeling any rush to enter positions. There is always less volume of trading in the stock market when the market is going up than when it is going down. So for day traders, the bias during the summer is often "go short", whereas during other months, the bias could be "go long".
The key to trading futures in the summer months is ... make quick trades. Go for less profit on each trade. Trends may be short lived, and there may be a lot of counter trends. So going for less profit, fewer ticks, is a good idea. Don't try and push the umbrella on every trade. Also make sure you have more technical confirmations before you enter. Watch for your setups and take the trade that meets all of your trading criteria before you enter.
Here's the most interesting part of trading during the summer doldrums. There is an odd phenomenom about summer doldrums. Even numbered years are typically less bullish or often bearish as compared to odd numbered years. Perhaps it is because even numbered years, such as 2015, 2016, have elections ongoing, and the Market is confused, which party will end up on top. Markets do not like uncertainty.
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