Jiří Filip Commercial message: The summer season brings certain specific conditions to the markets that are important to take into account. Volatility and liquidity are reduced, which requires adjustment of trading strategies and access to markets. In this article, we will look at several important factors that you should consider when preparing your trading tactics for the coming months.
Adapt your strategies to lower volatility
There is a well-known saying among long-term investors, "Sell in May and go away" (loosely translated as: Sell in May and leave the markets), and for many years there has been a debate about how seriously this saying should be taken. But it cannot be denied that at least the idea of a change in market sentiment at this time is based on reality. During the summer months there really is a general reduction in volatility in the markets.
This means that price movements are usually smaller and less dynamic. Evidence of this phenomenon can be seen on the financial markets practically every year, including this year VIX volatility index is at record lows. Therefore, it is important to adapt your strategies to this lower volatility. One option is to reduce the sizes of your Stop loss and Take profit orders to be more in line with expected price movements.
Avoid excessive activity
Less activity and reduced volatility logically usually lead to fewer opportunities to trade. It is important not to make the mistake of trying to find trade opportunities at any cost. Instead, it's better to be selective and pick only the best trades that match your strategy rules.
Focus on higher time frames
Given the lower activity in the markets, it may be beneficial to focus on higher time frames. Analyzing and trading on hourly, daily to weekly charts can provide better insight into long-term trends and potential trades. Generally speaking, by looking at higher time frames, you will reduce the impact of short-term fluctuations and noise in the markets.
Broaden the range of markets you monitor
The summer period can also be a time when it is appropriate to expand the range of monitored instruments. Finding suitable markets that are not always positively correlated but can still deliver interesting trading signals as a diversification of existing strategies may seem appropriate. Commodities, which are generally more susceptible to calendar seasonality. U for commodities such as corn and grain, it is determined by the time of harvest, for energy commodities, such as natural gas or gasoline, it is again determined by changes in consumption.
Track important economic data
Despite the reduced volatility, the summer months are still the time when important macroeconomic data are published, especially inflation, unemployment and, last but not least, monetary policy itself. Due to the lower liquidity in the markets, this data can lead to larger movements in the markets. It is therefore important to monitor macroeconomic calendar and be ready to react to any fluctuations. This year, these dates are more important than ever. Fear of a recession is still in the air, and any such disclosure could be a catalyst for big moves.
Evaluate and review your business results
The summer months are also a good time to evaluate and review your business results. This part of trading is often neglected or not given as much time, but it is a crucial part for long-term profitability. If you trade less actively, you can set aside more time to analyze your previous trades. Analyze which deals were successful and which did not develop as expected. Identify factors that contributed to success or failure. This reflection will allow you to gain valuable insights and improve your trading approach.
You can find more information and educational materials about trading on the YouTube channel XTB Czech Republic and Slovakia av Knowledge base on the XTB website.
