If you’ve been trading for more than a couple of years, you know that trading during the summer months, or even around any holiday season can be a bit more challenging than other times of the year where price action seems to just rip with volatility. Both the forex and futures markets tend to slow down during the summer months, a phenomenon known as “summer doldrums”.

This type of market is characterized by reduced volume and volatility in the market, and this means that traders either need to adjust how they trade to remain consistent when markets slow down, or find a proven strategy that has clearly defined rules that will keep you out of the market when it’s choppy. 

In this short article we’ll explore what these “summer doldrums” are, what contributes to them, and how you can still be a consistent trader in spite of them.

What Are “Summer Doldrums”?

The summer doldrums are a time period during the summer months when trading activity generally slows down across the board, although this phenomenon tends to affect the futures and forex markets the most.

This usually lasts from late June through to the end of August. It's characterized by a noticeable decline in trading volumes, combined with highly reduced market volatility. Due to the reduced volatility and trading volume, it can be difficult for traders to find profitable opportunities, especially for beginners.

However, if you can understand the underlying reasons behind these summer doldrums, and know what to expect during the slow months, you can still be profitable over the summer.

Factors That Contribute to the Summer Decline in Forex and Futures Trading

There are actually a couple of main factors I believe that heavily contribute to the summer decline in trading activity in the forex and futures markets, and it might seem obvious to some, but it can be helpful to know the “why” behind the slow-down.

Reason #1: It’s Vacation Season

The number one factor contributing to the summer decline in forex trading is quite simply that it's vacation season. Institutional traders make up a substantial portion of forex, futures, and equities trading volume, and these people tend to take time off in the summer.

This is also true of individual and at home traders, although they take up a far lower share of the total market’s trading volume. However, as these traders take their vacations during the summer, trading volume decreases, along with lower liquidity and volatility. In some cases, this can lead to market stagnation.

Reason #2: The Market Hivemind

The second major contributing factor to the summer doldrums is quite simply market psychology. Many traders are aware of how the summer months are characterized by a lower trading volume. Therefore, many traders adjust their strategies preemptively to account for this decreased activity, either by reducing their trading frequency, or taking a break from trading during these months completely.

However, this also creates a self-fulfilling prophecy. If the vast majority of traders expect reduced activity and low volatility, they're naturally inclined to be more cautious and to trade less, ultimately furthering the decline in trading volume and volatility.

Lower Trading Volumes Can Sometimes Mean More Exaggerated Price Movements?

Something that I’ve noticed throughout the years of being a trader is that although trading volumes decrease during the summer months, this same phenomenon can also produce exaggerated or choppy/volatile price movements. Because there are fewer participants trading in the market, large orders have a bigger impact on prices, and this is especially true for markets that already have low liquidity to begin with.

The fewer traders there are and the larger their orders are, the more significantly prices will be impacted. This can lead to unexpected and sharp movements in price.

This provides traders with great opportunities to capitalize on price swings. Attentive traders can easily take advantage of these opportunities, although these price movements are extremely unpredictable, and that of course tends to bring risk along with it.

Tips For Trading Summer Market Conditions: Generating Profits During the Summer Months

If your goal is to be able to trade year round, there are plenty of ways you can go about either adjusting your trading plan, or finding a trading plan that is dynamic enough to still generate profits during the slower summer months.

Dynamic Price Action Strategies Reign King For Slow Markets

Traders that rely on indicators tend to struggle during summer months because they just don't work well when there is reduced volatility and volume. 

However, traders that employ a price action based strategy tend to be able to capture (albeit small) moves in the markets they trade because their trading edge still has efficacy regardless of lower volatility conditions.

Consider Trading Multiple Instruments

If you’re really struggling to find setups during the summer months, consider monitoring two or even three trading instruments instead of just one or two. This is something that a lot of traders do year round regardless of what season we’re in. Personally, I like to switch it up between FX and Futures.

Obviously the downside to monitoring multiple pairs or trading instruments is that your focus will undoubtedly be divided, which can inevitably lead to more trading errors and mistakes. It can also lead to you missing setups in one market while you’re focusing on another. It’s a balancing act that can be worth it, if done correctly.

Keep An Eye Out For Volatile Price Action

Not all summer months have slow price action. It’s highly dependent on what forex pair or instrument you’re trading, and how the market is moving. For example, just because NQ (NASDAQ Futures) may slow down a bit during the summer months, doesn’t mean that it still doesn’t move enough that you can capitalize on valid trade setups that present themselves.

Maybe the market doesn’t move as drastically, but there are still opportunities to get in and make some +R before that volatility fizzles out, you just need to utilize alerts and make sure you’re around when it does set up.

Conclusion

Well that wraps up my thoughts on what the summer season is like as a seasoned trader, how you can still pull profits out of the market even when things seem slow, and why you don’t need to completely take the summer months off from trading if you don’t want to. Personally I trade the summer months, almost no different from how I trade regular months throughout the year, because the trading strategy I developed over the years just works no matter what the conditions are like. (I may just manage my trades more aggressively.)

Until next time,
Brian