We're now in the middle of August, and many traders are enjoying a well-deserved rest. Still, not everyone is eager to run to the beach and leave their PCs behind.
Today, we will explain how traders can tackle the Forex and CFD markets either from the beach or from the comfort of their home even during the summer.
Will the Price Move in August?
On the average, price action and volatility tend to decrease in August. However, this is more of a general observation across the financial markets, which also varies from year to year.
The most important measurement is simply looking at technical analysis of each financial instrument. This will provide more valuable information about the potential volatility for each currency pair, CFD, stock index, commodity, or cryptocurrency.
What Trades Setups during Summer?
Commonly speaking, I am looking to trade with the trend setups. For me, it is easier to measure trend, pullback, and continuation than hunt for reversal setups or catch range trades.
However, during the summer, I stray away my trend rules and also include range trades in my bag of setups. Here are the most important aspects of trading both with the trend and ranges.
What are the Key Aspects for Range Setups?
Range setups tend to occur a bit more during the summer, August in particular. When trading is ranging, it is important to keep the following three points in mind, especially during the summer:
- Presence of strong momentum candles → It is time to avoid the currency pair or CFD once small, indecisive candles form the majority as the price is building a correction.
- A sizeable range zone → There should be a large enough space between support and resistance for a trade to make sense from the reward to risk ratio perspective.
- Be careful of major news events → Key news events – interest rates and central bank statements – always have the potential to create large volatility, but during the summer, this could become excessive as the liquidity is lower than usual.
Source: EUR/USD, 1-hour chart showing a range from 24 February to 9 March 2017; red lines showing resistance, blue lines showing support, and purple arrows indicating the space between them.
What are the Key Aspects for Trend Setups?
Trend setups might occur less in the summer, but there usually are several good moving currency pairs, commodities, or CFDs available. The most important question is how to measure whether the trend is present and interesting to trade. Here are some of the key factors I analyse when scanning the charts:
- Moving averages are aligned and presence of space → Moving averages (MAs) that are on top of each other indicate lack of movement (correction). The MAs look different when a trend is visible; they will offer a good angle, be aligned to one side, and show space between each other.
- The Admiral Keltner indicator has an angle → A range is most likely to occur if the Keltner (part of MT4SE) is flat or small in width, whereas the band levels will show an angle or an expansion during a trend.
- The ATR and ADX are expanding → Quick and impulsive price action will often translate to an ADX level above 20-25. If the momentum has recently started, it will also show an upward angle. The ATR is also a volatility indicator. Spikes on the ATR show an increase in momentum, whereas a flat movement indicates correction.
The image below shows what the month of August looked like one year ago. As you can see, there were a few moments when the price retraced or slowed down (red arrows), but, in fact, there were more spots where the price was trending (blue arrows).
The USD/JPY showed a good downtrend and uptrend all within a few weeks of trading in August.
Source: USD/JPY, 1-hour chart, August 2016 MT4 Supreme Edition; red arrows showing retracement or correction, whereas blue arrows, trends.
What Time Frames Can I Trade?
This question depends on the factors mentioned above and, of course, on your preference for trading. If you usually trade on the 15-minute chart, but there is hardly anything interesting to trade that day, it could be worth switching gears and check the 1-hour or 4-hour chart. These time frames could be showing a strong trend and volatility when reviewing the MA's and ADX.
The opposite example could also occur. Perhaps you are used to trading trend setups on the daily chart, but the Forex market has gone quiet. A trader could mix it up by zooming into a 1-hour chart and checking whether a trend is present there.
In any case, whether you trade in August or wait for September instead, Admiral Markets will be ready whenever you're ready offering lots of support:
- Access to the markets with very low fees;
- Excellent trading education, analytics; and
- The best technology on the market – MetaTrader 4 Supreme Edition.
Cheers and safe trading,