5 Summer Trading Problems and How to Overcome Them
June 9, 2017 12:12 pm
The summer is a great time to go on vacation and enjoy the outdoors. For traders, it can be a less than ideal time to trade the financial markets. Below are five summer trading problems and how you can overcome them. By applying these principles, you can make the most out of the summer doldrums.
“Sell in May and walk away” mentality
Believe it or not, “Sell in May and walk away” is a common trading strategy on Wall Street and around the world. It’s based on the Halloween indicator, which states that most of the market’s gains come in the six months beginning on October 31.[1] Obviously, this mindset creates negative expectations during the summer months. But if you’re keen on trading in the summer, you should spend more time researching the opportunities and avoiding the shortfalls. Trading activity might be lower during the summer, but there’s still plenty of opportunity in a market that trades the exact same indicators in July and August as it does at all other times during the year. This might be a great time to look at other markets or perhaps increase your exposure to Australian and New Zealand assets (summer in the northern hemisphere is actually winter down under).
Low volume
Summertime is widely considered to be a dull period for the financial markets, mostly due to lower trading volumes. Vacations, seasonal trading strategies and a slowdown in hiring activity can make for relatively boring trading conditions. In a low volume environment, traders should avoid unstable markets that are prone to large price fluctuations. This is likely to be exacerbated during periods of low volume. Traders who seek higher volumes might consider trading major economic events, such as jobs reports, monetary policy announcements and other high profile releases on the economic calendar. Like we mentioned above, these economic events are in full swing during the summer season.
Low volatility
While not for everyone, volatility trading is a great way to increase opportunity in the market. Unfortunately, as trading volumes dry up, so does volatility. The good news is there are several strategies you may use to trade low volatility markets. In addition to keeping position sizes small, strategies such as put/call debit spreads and ratio spreads in options trading may help you overcome the volatility doldrums.[2] Paying attention to the economic calendar is also important in this respect.
Distraction
The biggest roadblocks to successful summer trading are often psychological. It’s not always easy to sit at your desk while people are out enjoying the warm season. Patios, pools, barbeques and beaches are just some of the summer delights that could make it more difficult for traders to focus on the market. That’s why it’s important for traders to actually get out and enjoy the summer. This will help create a healthy balance between work and relaxation.
Disappointing non-summer months
Let’s face it – traders who have performed poorly during the winter might be compelled to trade more aggressively during the summer. This should give traders the extra motivation to improve their trading strategy all-year round. A solid winter season with strong returns will give you that much more flexibility and freedom to enjoy the summertime. Even if you had a bad trading year, don’t feel the need to “catch up” during the summer where volumes, volatility and overall interest in the market are low.
After reading this article, you should have some appreciation for the financial market’s summertime blues. By keeping a healthy perspective and working extra hard during the colder months, you can actually enjoy the quieter trading environment that’s usually associated with July and August.
[1] David Larrabee (October 30, 2016). “The Halloween Indicator: A Stock Market Anomaly That Is Stronger than Ever.” Enterprising Investor.
[2] Options Alpha. “3 Option Strategies To Use During Low Volatility Markets.”
The summer is a great time to go on vacation and enjoy the outdoors. For traders, it can be a less than ideal time to trade the financial markets. Below are five summer trading problems and how you can overcome them. By applying these principles, you can make the most out of the summer doldrums.
“Sell in May and walk away” mentality
Believe it or not, “Sell in May and walk away” is a common trading strategy on Wall Street and around the world. It’s based on the Halloween indicator, which states that most of the market’s gains come in the six months beginning on October 31.[1] Obviously, this mindset creates negative expectations during the summer months. But if you’re keen on trading in the summer, you should spend more time researching the opportunities and avoiding the shortfalls. Trading activity might be lower during the summer, but there’s still plenty of opportunity in a market that trades the exact same indicators in July and August as it does at all other times during the year. This might be a great time to look at other markets or perhaps increase your exposure to Australian and New Zealand assets (summer in the northern hemisphere is actually winter down under).
Low volume
Summertime is widely considered to be a dull period for the financial markets, mostly due to lower trading volumes. Vacations, seasonal trading strategies and a slowdown in hiring activity can make for relatively boring trading conditions. In a low volume environment, traders should avoid unstable markets that are prone to large price fluctuations. This is likely to be exacerbated during periods of low volume. Traders who seek higher volumes might consider trading major economic events, such as jobs reports, monetary policy announcements and other high profile releases on the economic calendar. Like we mentioned above, these economic events are in full swing during the summer season.
Low volatility
While not for everyone, volatility trading is a great way to increase opportunity in the market. Unfortunately, as trading volumes dry up, so does volatility. The good news is there are several strategies you may use to trade low volatility markets. In addition to keeping position sizes small, strategies such as put/call debit spreads and ratio spreads in options trading may help you overcome the volatility doldrums.[2] Paying attention to the economic calendar is also important in this respect.
Distraction
The biggest roadblocks to successful summer trading are often psychological. It’s not always easy to sit at your desk while people are out enjoying the warm season. Patios, pools, barbeques and beaches are just some of the summer delights that could make it more difficult for traders to focus on the market. That’s why it’s important for traders to actually get out and enjoy the summer. This will help create a healthy balance between work and relaxation.
Disappointing non-summer months
Let’s face it – traders who have performed poorly during the winter might be compelled to trade more aggressively during the summer. This should give traders the extra motivation to improve their trading strategy all-year round. A solid winter season with strong returns will give you that much more flexibility and freedom to enjoy the summertime. Even if you had a bad trading year, don’t feel the need to “catch up” during the summer where volumes, volatility and overall interest in the market are low.
After reading this article, you should have some appreciation for the financial market’s summertime blues. By keeping a healthy perspective and working extra hard during the colder months, you can actually enjoy the quieter trading environment that’s usually associated with July and August.
[1] David Larrabee (October 30, 2016). “The Halloween Indicator: A Stock Market Anomaly That Is Stronger than Ever.” Enterprising Investor.
[2] Options Alpha. “3 Option Strategies To Use During Low Volatility Markets.”
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