The Christmas is approaching for traders as well and with it comes a period when market liquidity and volatility drops. That happens because most of the institutional traders are in vacation. Because of that it is very important that you adapt you trading strategy to this environment. Discipline is very important in trading and having a well-designed system in play is a must. However, there are times when you need to be flexible and make adjustments to that system in order to maintain a level of profitability.
Trading and Holidays
source: groupon.com
We’ve designed this article in order to give you two basic tips that can help you trade better during holiday periods.
Tip #1 Trade on smaller time frames – Since the market volatility is low, you need to find trading opportunities on smaller time frames. If you are a swing trader, go a 30 min or 15 min chart and trade there. You won’t be able to catch moves that last for a few days during holiday period because there is not enough liquidity to support a certain move for extended periods of time. Also, during holidays, there are no important economic events that could impact the market heavily. If you really want to keep trading during holidays, then we suggest going on smaller time frames.
Tip#2 Smaller stop loss, smaller take profit – Since you will be trading on smaller times, you need to also adjust your stop loss and take profit. Gunning for a smaller amount of pips is advised during this periods. Also, keep in mind that even you decrease your stop loss and take profit, you need to do it in such a way that you maintain a good risk management, with at least 2:1 reward to risk ratio.
To summarize, since holiday is near we wish you all the best and try to take into account the things we’ve described above. Trading in low liquidity environments could be very tricky sometimes and reversals can happen very easily. Make sure you can monitor your account closely, if you really want to trade forex in the days ahead.