Now It is the right time to warn you about the danger of trading during the month of December.
December is always the hardest month of the year to make money in the forex market. Let’s find out why.
For many companys, December is a time to take a break from work and spend time with family and friends. This is the time when a lot trading institutions that are responsible for liquidity in the market and Banks as the major players in the market take holidays thus the liquidity and volume drops during this time.
4 reasons to stay away from the Forex market this December
1. Low volatility
If most of those trading institutions that are responsible for liquidity are closed the volatility in all of the currency pairs will always drop off quite considerably. this generally register significantly lower volume in comparison to other months. You get a lot of slow-moving markets and a lot of trading sessions that are very quiet , with very little price movement at all.
2. Low liquidity
Liquidity gives you the ability to enter and exit a trade very quickly, in a forex trading context.
Liquidity comes from many different sources, but the large part is made up by the trading institutional firms, most of which are closed . With low liquidity, it becomes difficult to get in or out of the market in an instant, depending on the currency pairs you’re trading.
3. Large Spread
Another disadvantage is the fact that the spread tend to increase towards the end of December till first or second week of January.
The spread in the major and cross-Currency pairs or minor currency pairs are tight during normal conditions but it is normal to notice the spread widen from mid-december, more especially in cross-currency pair. This is caused by the lack of liquidity and volumes in the market.
When the price goes up or down very strongly and suddenly and then turns around- that is what we call a “spike”.
Price spikes are often seen during the important news events but they can also be formed very often during this time of the year.
So, what you should do as a retail trader?
Well, it’s only prudent that you also take a break from the financial market until everything is back to normal. As a swing trader i tend to reduce my trading activity from the start of the month, and only take on the best higher probability trades until mid-december then I take a break from the market until the second week of January.
If you insist on trading, that is your choice but chances are, you can end up losing all the profit you have made through out the year or can even lose your whole account if you’re not careful.
This is a good time for retail traders such as you and me to take a break too.If the markets are flat there’s no point in trading so go off and enjoy yourself.
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Marry Christmas and happy new year.
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