Tough Trading In Coming Few Months

By Lawrence

iStock_000009869846XSmallUS election is early November. Olympic occupies pretty much all August. Although they are completely independent events, yet their schedules are set to happen together every four years. This combination creates a very interesting trading environment that happens only once every four years.

From August to October during US Election year, we usually experience exceptionally low trading volume. It is not a surprise because many people will tune in to watch the Olympic games. I still remember the floor traders and market makers watching the games on the trading floor instead of monitoring their positions, if they have any at all.

Very low trading volume makes it difficult to read the intraday charts effectively. It is especially true for the lower timeframes like 1-minute charts. In such low volume environment, the price movements become choppy and erratic. A sudden jump in one direction does not imply that we are going to get a move in that direction. Instead price may snap back to where it was moments later.

There is no good solution in dealing with this kind of situation. Some professional traders choose to take a long vacation in August during US Election year to avoid the mess all together. Some will switch to higher timeframes to look for better trading setups while others slow down their trading to just a few trades a day or none at all if they do not see any good opportunity.

Many beginner traders pick up their bad trading habits during this period of time. As they are so focus on reading the charts, their brains are trained to read the bad signals as if they mean something. This in turn will make it very difficult for them to learn the better trading setups in a normal trading environment.

Hence the awareness of the type of environment we are dealing with is actually very important. By knowing when to stop reading too much from the charts, we protect our minds from corruption by the meaningless noises in the markets. In turn, we save ourselves from making trading mistakes that we know they are totally avoidable.


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