Last updated on April 20th, 2020
Summer trading is upon us and many times that means slow markets.
But just as in life, we can’t get lulled into going through the motions when grinding price action takes over our screens.
So let’s have a conversation about how markets can change their behavior very quickly.
They can move from very quiet ranging markets to very busy and often directional markets in a very short space of time.
This can happen in summer markets when news is released and markets get a jolt, or it can happen leading into a highly anticipated risk event such as a Fed meeting or Non-Farm Payrolls release.
In fact this could apply just as much to the reverse scenario, where traders are anticipating a quiet market and so get their business done early, creating a very slow environment for the remainder of the session.
Whether trading is slow or it’s fast, the issue is that it can be a struggle to trade effectively when the market switches gears quickly.
Is Trading About Preparation? I Say Yes!
I believe that much of trading comes down to preparation.
For example, too many traders come into work on what they feel will be a quiet day and fail to plan for the possibility of the market breaking out.
Errors are then easier to make when you’re trying to assess as well as plan while the market is unfolding at a rate that can put you to sleep.
- It could be that you fail to spot the break at all and continue to play the range extremes.
- It be the case that you just don’t believe a break enough to hold on to a position and you only take a few ticks or that you miss a good entry location and start chasing the market until you finally get a trade executed – just when the market turns!
There have been times in the past where I’ve been caught right at the very top!
The problem with these issues is it can carry over to your next trade – and the big part of being a successful trader is minimizing errors and the compounding affect they can have.
If you are going to trade on any day whatsoever, you must effectively prepare and account for possible market conditions and scenarios.
Know What To Prepare For
Imagine you think today might be a quiet day, you may look at preparing for the following scenario:
- Primary market session opens up
- Traders test one way and then the other
- Once initial trading is complete, further tests of either side to explore for action may take place
- If no new interest is found at the extremes (i.e. there is no breakout) then the market may be range bound
- If market starts to move quicker, watch for breakout and for possible news reports
- In event of breakout, enter market only when pullback to good location occurs in order to minimize risk
This is a basic outline of just one scenario and would need to be filled out with market specifics and your own trading methodology.
It could branch out into different scenarios very easily.
What if the market initially tests one way and finds a whole heap of order waiting to be filled?
What would you look for and how would you attempt to trade in this situation?
Even though it’s very simple, lots of people don’t do it properly if at all before they trade and especially on what they deem to be a quiet day.
But then if it does move, the potential is definitely there to get into trouble. Generally, the simpler things are the less value people assign to them. Would you agree with that?
Didn’t Prepare? Take A Day Off
The other option in the case of a potentially quiet day is to just do something else and not trade at all.
However, if this is what you decide to do but you still monitor the market at the same time, you must be disciplined to not do anything!
If you don’t prepare, don’t trade just because the market starts moving unexpectedly. That can lead to problems.
If you do prepare but choose a specific set of conditions which are required for you to enter the market, then stick to them! Don’t take a trade out of boredom!
The last scenario is when it’s going to be quiet and people want to get their business done early. The market moves in a sustained direction for a while then just stops.
If you haven’t covered this scenario in the context of the broader market, then you could be banging away at perfectly reasonable trend continuation trades when really, your entry is somewhere toward the wrong extreme of what is to become a new range.
One Directional Day
Assessing the possibility of a “one-move” session can be difficult sometimes especially for a newer trader.
However, there are a few simple clues to help you deduce that this scenario has a high likelihood.
Time of the year is generally important.
When lots of traders are likely to be on holiday, those stuck in the office probably won’t want a long day or to get into trouble in a quiet market right before they go off on holiday with the family.
There’s nothing worse than having taken a big hit in the market, to then have to seem happy in front of the family or to try to come up with something when they ask why you’re in a bad mood!!
Then there’s whether or not there’s a scheduled economic release or speech. Holiday, holiday Friday or otherwise, if market moving information is due to be released then there’s a much greater chance that it’ll be busy.
So when it comes down to being able to run with the market when it switches gears in times such as the summer, preparation for different scenarios prior to trading each day is critical.
Fail to prepare, prepare to fail
I can’t emphasize enough just how important this is for trading.
In fact, I would say that most issues arise for traders either directly because of or at least relating to preparation in its various forms.