Summer is a very specific period for financial markets.
And no matter what you trade: forex, stocks, gold, crypto, with years of trading you will notice how different are the markets in summer.
In this article, we will discuss why summer time market is so unique, why it happens, how it affects your trading and how to trade in summer.
Impact of Summer Holidays
First, let's discuss how summer holidays impact the financial markets.
Typically, the markets tend to slow down.
June is the most volatile month of Summer that is followed by a slowing July and a weak month of August.
The market volatility drops and we see fewer impulsive movements.
Look at the chart above. It is a gold chart on a weekly time frame with Average True Range ATR indicator.
ATR measures the market volatility and shows how impulsive is the market during a certain period of time.
We can see an apparent drop in volatility from June to August in 2023 on Gold.
It shows how weak was the market in comparison to other seasons.
The markets tend to consolidate more, to trade within the ranges and accumulate. We see more consolidation patterns like horizontal parallel channels, symmetrical and broadening triangles with fewer trend-following patterns.
Look at a volatility on EURUSD in 2023.
Even though the first month of summer was quite volatile,
the market slowed down in July and remained weak till the end of Summer.
Why Markets Slow Down
Now, let's discuss the reasons why the markets tend to decelerate in Summer.
1. Decreased trading activity
Many market participants: hedge funds, banks, pension funds, retails traders have a vacations period during the summer.
It leads to lower overall trading volumes in the markets.
Look how the trading volumes were declining on Bitcoin in Summer 2023.
We see some activity in June that is followed by the lowest volumes in a period from the middle of July to the end of August.
2. Central bank holidays
Many central banks around the world have holidays in the summer.
During the summer months, there are fewer high impact economic events such as speeches of central bank presidents/chairmen, the interest rate decisions and monetary policy reports.
That can lead to reduced trading activity and lower volatility as market participants wait for these institutions to return to full operation.
In the table above, you can see the schedule of FOMC meetings in 2024.
FOMC has a high impact on financial markets.
In August, there is no FOMC and many market participants will patiently wait for it in September.
Now look at a schedule of FED Powell Speeches in 2023.
While his speeches were very regular throughout the year and could occur as often as 3 times a month, you can observe that there were just 3 speeches during Summer 2023 and no speeches in July.
Powell speeches may affect the markets significantly, causing volatile and impulsive movements.
3. Timing of Major Events
Certain major political events may be less frequent during the summer months.
As other people, politicians tend to have a vacation period in Summer.
With the absence of politicians, there are fewer bad geopolitical and economic news.
That makes the markets more stable and calm.
Above is 2024 US Congress Schedule.
The entire month of August is blank.
Such a period is called The August recess. Members of Congress take a break from their legislative duties and return to their home districts to spend time with their constituents.
All these factors lead to a slow, quite often boring markets during summer.
Being slow, the markets stop trending, so the swing traders find fewer setups to trade. With a low volatility, day traders make fewer profits while the daily movements are limited.
Important Rule
With the absence of trading setups, many traders start breaking the rules of their trading strategies. They start trading the setups, the patterns that they did not trade before.
That is a terrible mistake that you should avoid.
Always remember that you should strictly follow your trading plan, no matter how boring is the market.
Stay Focused
While the markets are slowing down,
Also remember that you should remain vigilant, as unexpected market-moving events can still occur at any time.
For example, the Brexit vote date was 16th of June.
The release of the vote result 24th of June made GBP pairs go crazy.
Just be ready that the market will be slower, there will be fewer trades.
But do not lose your focus, because still there is great chance to make nice money in summer.
Also, summer holidays give the great opportunity for you to enjoy summer and to learn something new.
