Forex Charts and Seasonal Trading
Most forex traders will use forex charts as their primary analysis method. This is true for all times of the year. However, traders may find that the charts change during seasonal times. This is due to the seasonal trends that forex trading goes through. While the forex market runs all year traders do not and your charts may give you an indication of when the market slows down.
When not to Trade
There are certain times of year when you should not trade because of the seasonal trading trends that come about, and are seen in the forex charts. At these times the market losses some of its liquidity and there are certain pairs that become more volatile. These seasonal trends generally occur at the same time each year and can easily be anticipated and identified.
Identifying Seasonal Trends with Forex Charts
One of the ways that you can identify when the seasonal trends are coming is through your forex chart analysis. You may notice that the market ranges more with certain pairs. Other pairs will have more unpredictable trends and highly volatile swings. This is due to the lack of traders and the decrease in liquidity. The lower the liquidity of the market the more likely the trend is to swing unpredictably. This is due to one trader placing a large order on a low liquidity market.
You will also be able to determine when the seasonal trends are ending with your charts. At this time the market will revert to what it was before the seasonal trends. This is down to increased liquidity on the market and the return of major stabilising factors.
Indentifying Seasonal Trends with the Calendar
Another way to identify when seasonal trends are coming is through the calendar. There are certain times of year when the market dips. This is generally around the holidays when banks and large corporations are not working. The removal of these major players on the market removes a large amount of liquidity. The lack of trading from these major players also decreases the movement on certain currency pairs.
The times when you should stay away from the market are during bank holidays, over the December period and during other religious holidays and country holidays. If you are trading with pairs that have the US dollar then the market will slow around American thanksgiving and other American holidays.
Why Seasonal Trends Happen
Many new traders may wonder why seasonal trends occur on the forex market. The main reason is that the major players on the market do not work all year like the market does. There are times when the banks are closed and when corporations and hedge funds do not trade. At these times you should take a leaf out of their books and stay away from the market.
Continuing to trade at these times does increase the risks and you will have lower profits. One of the reasons for this is that brokers generally widen their spreads during these times to make money. The increase in the spreads lowers the amount of profit you can get from small movements. The market is also more unpredictable during this time which increases the risks.