By Admiral Markets
Summer is generally a slow, low liquidity trading period – so Forex trading can be fickle, whimsical, even dull.
Not surprising then, that many institutional traders in Europe and North America take their holidays over this time.
After all, staring at low activity charts is not going to make you a better trader or more profit.
But what happens when you inevitably return from the final summer month of August, to find everyone else has done the same thing?
Facing post-summer liquidity is not for the weak hearted – but it’s not something you need to fear either.
In this post, you can learn how to prepare for high liquidity trading and avoid the stress that many of your less informed counterparts will face.
But hey, if you prefer action over education at this point:
Forex strategy testing
Testing and learning are critical to preparing for intense trading action.
And there’s no better time to do this, than when the market is slow.
So I suggest that today you:
- pick one pair and trade it in real time on a demo account
- work on your weakest/strongest system or price action model (i.e trading with the trend), with a skill you want to develop
- test various strategies e.g. swing trading
- use the Forex strategy tester as its name suggests.
This is a great way to improve your trading confidence and psychological conditioning, for improved live trading performance.
Prepare for major sessions
Fresh positions will likely be instigated via momentum from regional market opens and closes, with very little action in between.
That means that a concentration of momentum will be in play at around 07:00, 08:00, 13:00 and 00:00 GMT.
The above times are ideal for finding new positions, because:
- they are major market opens
- there will be new buyers/sellers aligning with historical buyers and sellers.
The 4-hr chart trend will determine the best direction to trade each pair in – with attention focused on the red-flag economic releases from each pair, before placing an intraday trade.
We may initially see a volatility spike, while liquidity is not at its full potential (first days of September).
Less liquidity means less directional flow:
…so there will probably be a reversal if there is not enough volatility to carry the trade and direction through.
Shorten your initial targets
Daily ranges tend to decrease tremendously during most summer months, hence the need to initially shorten your targets.
Your stop-loss will probably be reduced too.
But don’t worry:
…volatility should rise from the middle of September and trading should normalise.
Want to know how to make trading easier for yourself over September?
This video gives you the run-down.
NFP and equities correlation
Bad economic data can turn equities into a risk-on mode.
That means the Yen can weaken, while bond yields simultaneously reduce.
We had a bad NFP last Friday, so there probably won’t be any rate hikes nearby and equities could go up.
I suggest you watch for correlation between various market instruments and learn to correctly use the numerous indicators offered in Admiral Markets cost-free MT4 Supreme Edition plugin.
Learn to scalp
Scalp trading specialises in taking profits on small price changes, usually soon after a trade has been entered and become profitable.
Just bear in mind that with scalping, you need to have a strict exit strategy i.e. once you’ve made about 10 or so pips – get out.
So, hopefully this post has helped you feel more confident about high volatility trading.
Just bear in mind that volatility in itself is neither good nor bad:
…and if you confront it as a simple market truth…
…you don’t need to avoid it or try to reduce your exposure to it.
The closer you are to the truth of a situation, the better you can confront and handle it.
Cheers and safe trading,
Article by Admiral Markets
Source: Don’t be scared, get prepared
Admiral Markets is a leading online provider, offering trading with Forex and CFDs on stocks, indices, precious metals and energy.