Direct from the desk of Dane Williams.
No, in my opinion you shouldn't trade forex during December.
This is because as institutional traders start to take their holidays, the lower liquidity makes the forex markets much more unpredictable.
Stop, take a break and come back better than ever with the rest of the smart money, after your calendar ticks over to the new year.
Why does trading volume and liquidity drop during December?
You can’t deny that December, the classic end of year holiday period, witnesses a significant drop in trading volume and liquidity.
It's the time when companies, banks and hedge funds shut down, seeing employees across the planet leave on well deserved holidays to spend time with their families over Christmas.
This annual trend creates a self fulfilling prophecy (god I love this term), of reduced market activity.
As the smart money such as institutional players step away, the forex market experiences a noticeable decline in liquidity.
Low liquidity isn't just a statistical decline in trading volume, it also has some serious tangible effects on the dynamics of forex trading.
The markets become more unpredictable, introducing a level of uncertainty that can be challenging to make money from.
As liquidity dwindles, gaps become more prevalent, causing prices to lurch around erratically.
No matter how good your trading strategy is, such erratic movements can and will catch you off guard, making it even more difficult to stay profitable.
Why does low liquidity make trading forex harder?
Considering these challenges, it becomes clear that trading forex during December may not be the smartest decision.
The lower market liquidity creates an environment where market conditions are less stable and the risk of unexpected price movements increases.
Unpredictable, choppy markets are not good trading markets.
For conservative traders who value consistency and reliability in their strategies, the volatility introduced by low liquidity in December can disrupt their usual approach.
Rather than trying to navigate the unpredictability of the forex market in December, a more prudent approach would be to take the month off and recharge for the upcoming year.
Use this time to reflect on your trading performance, assess your strategies and plan for the challenges and opportunities that the new year will always bring.
Taking a step back during December can help you avoid unnecessary risks and ensure that you enter January with a refreshed mindset and a stronger than ever trading plan.
Stop trading forex during December
The decision to refrain from trading forex during December is rooted in the understanding that as institutional money takes its holiday break, the resulting lower liquidity makes forex markets considerably more unpredictable.
By acknowledging the challenges posed by reduced trading volume and erratic price movements, traders can make informed decisions that prioritise long-term success over short-term gains. So, don’t be a part of the 95% of forex traders that lose money.
Take December off, recharge and get ready to hit January with renewed focus and vigour when the calendar eventually ticks over.
I assure you, the markets will still be here when you get back.
Best of probabilities to you.