November 25, 2014
Why December Is Such A Challenging Month For Forex Traders
I have been trading the forex markets for a number of years now, and in my experience December is always the hardest month of the year to make money. So why is this?
Well it's basically because as Christmas approaches, volatility in all of the major currency pairs always tends to drop off quite considerably.
As a result, you get a lot of slow-moving markets and a lot of trading sessions that are very quiet indeed, with very little price movement at all.
To verify this for yourself, you only have to apply the average true range indicator to a daily chart of any of the main forex pairs, and see how it falls during December every single year.
It doesn't get any easier to make money just after Christmas either because the markets tend to remain subdued until well into January when all of the traders are back at their desks.
So if you have a profitable trading strategy in place that is able to generate consistent profits during the rest of the year, you might want to consider reducing your profit targets or making changes to your strategy during the month of December because you could easily come unstuck in this quiet trading period.
I myself tend to reduce my trading activity at the start of the month, and only take on the best high probability trades on the longer time frames, before stopping altogether once we get to around 15 December. I will then slowly get back into the swing of things during the first or second full working week of the new year.
To compensate for the reduced earnings during this period, the stock markets tend to do well as we approach the end of year, which is why people often refer to a 'Santa Claus rally'. So as I invest in a lot of high quality dividend stocks, this is usually a good time to bank some profits and make some money from a few short-term trades if I have opened any trades in October or November, for example.
A strategy that has always worked for me every year is to buy Tesco when they are oversold in the months leading up to Christmas and sell them in the new year, either after or just before they announce their results for the Christmas period.
However I won't be doing that this year because for once I can't be sure that they will have another good Christmas now that they have so much other competition from the discount supermarkets, and I'm wary of trading them at all since they issued their profit warnings earlier in the year.
Anyway I've gone off track somewhat. The point is that from a forex trader's perspective, it is worth remembering that like the quiet summer period, it can be very difficult to make money during December. So you should prepare yourself for this and either stop trading fairly early on, or make changes to your trading strategy if you have to in order to earn some money before Christmas.