Follow forex trading across any year and observe the cyclical patterns. Flow with the cycles and profit from them…
N.B. this page covers forex trading times and cycles across the Forex Market Year. If you are looking for details of forex trading hours and forex market opening times etc, click the following link to go to the page on the Forex Market Day.
Markets go through cycles both on higher and lower level time frames. The forex market cycles each year as waves of liquidity and trader interest peak, plateau, fall off, bottom out, track sideways and then rise once more.
During the northern hemisphere summer much of the bank trading and related forex trading industries are in a kind of recess as everyone goes on holiday (except for those unlucky sods who stay behind to mind the shop!)
At this time trading certain systems can be precarious due to the lack of liquidity in the market. For example medium-term trend systems can perform rather poorly at this time of the year.
It can be hard to pick any long-term trend and ride it during such periods. Price ranges through much of this time, interspersed with trade-killing spikes when news breaks.
On the other hand, if you can avoid the spikes this can be a good time to trade a range trading strategy such as the Bolly Band Bounce.
It’s not just the northern summer months that behave differently. As traders we need to be aware of changing liquidity around times such as Easter, Christmas, and also end of month periods when many financial institutions are settling their accounts. This change in liquidity can lead to dead price action interspersed with dangerous spikes.
The seasoned trader will have strategies for either trading the markets around these times or avoiding trading altogether, based on their considerable experience. For the new trader, it is better to stand aside at these times until you understand how to approach the markets under these conditions according to your own psychological profile.
Other periods of the year which may present difficulty are December and January generally, as the Christmas holidays roll in to New Year celebrations and once more liquidity tends to drain from the market. It’s important to note that liquidity leaving the market does not always imply dull price action: the very fact that fewer orders remain makes it much easier to move price, which can result in very savage spikes in both directions.
This section can be no more than an introduction to the concept of the forex market cycles through each year. The only way to really master these cycles is by constant engagement with the market over many years, always keeping an eye on your risk exposure during the early years as you learn your trade.
If we take one step above the time frame of yearly cycles, we get into the concept of the markets cycling over periods of years or even decades. This is beyond the scope of this discussion, but it should be noted that this high level cyclic effect can have a top down effect on the individual forex market year.
One other thing to note: not every forex year holds true to the patterns described above. For example, the year just ending – 2012 – did see a very dead, sideways tracking market during much of the northern summer holidays. This made for generally difficult trading, except for the exception noted with respect to range trading strategies.
But the year before – 2011 – was much more even and consistent during this period. So it’s not as though you can place a template on any year and predict exactly how it will behave. Just be aware of the probabilities based on past years’ behaviour. This will best prepare you for the cycles and enable you to position yourself accordingly.
We’ve talked about forex trading hours & times within the context of the yearly cycle, and touched on the notion of super cycles above that. The next section of the discussion deals with forex hours trading on the daily cycle. Click the following link to go to The Forex Market Day.