The majority of foreign exchange traders know that it is non-beneficial to trade during the holiday season. This is generally due to the low liquidity of the market over these months. However, there are various seasonal effects which one must be aware of that have little to do with the holiday season. By using historical forex comparison, evidence has shown that one can trade during these seasons and still make a profit.
The monthly currency trading comparison
Unlike other trading markets, the foreign exchange market is operates all year round. However, this does not mean one can make a profit throughout the year. Historic currency trading comparisons have indicated that specific currencies are not profitable during particular months. Generally the market will dip during September as this is the holiday season in the Northern Hemisphere. This is also the month when many individuals in this hemisphere will go take holiday leave and enjoy the summer.
While considering the season for trading, you must also examine the currency pair you are trading. It has been seen that the Euro increases in value during mid-March, July and August. However, it will decline in value during September, October and early April. The Pound presents an increase in value during early April, August and November. However, it shows lows in September, mid-May and late November. The US dollar increases in value during mid-February, late March, early May, the middle of June, mid-August and the month of November. However, there is a decline in value during the months of December, September and July. A decline is also seen in mid-March and late May.
By noting these seasonal changes you will have a greater awareness of when to trade your currencies effectively. This will increase your profitable trades and improve your trading account balance.
Looking at the ‘January Effect’
When perusing historical currency trading data, you will notice there is not much information on the month of January. This is due to a concept known as the ‘January Effect.’ This effect involves the traders returning to the foreign currency trading market after taking December off. Many times they will return with vengeance making the market very volatile and highly liquid. It must be noted that this period sees both retail traders and large institutions return making it a time when traders can experience many profitable trades if using the correct strategies.
The pre-holiday currency trading rallies
It is not important to look at the market during and after the holiday exclusively, but also at the period just before the holiday season. This period is known as the ‘pre-holiday rallies’ and involves a greater awareness of the forex brokers’ spreads. The market is highly volatile during this period with high liquidity and some brokers may start widening their spreads. They will do this in anticipation of the holiday season with its low trading activity. If your broker is offering decent spreads pre-holiday you should consider trading at this period. However, if they are widening their spreads you should avoid any trading as this can cause trades to turn against you.