I’m going to be honest, I did not write this article and I give full credit to the author A. Collins. I felt no reason to restate what he has written as I agree with his outlook on the subject. Below is a copy from his article “5 Reasons To Avoid Holiday Trading In Forex”
I’m used to answering almost every single day to my clients why they shouldn’t trade during the holidays like Christmas and New Year, Independence Day and Thanksgiving Day. I can proceed according to the list but basically those are the major US, UK, Germany and Australia holidays.
Today I’m going to clarify the situation regarding all these holidays and try to answer the question: “Is it worth trading during the currency market holidays?”
Let’s take an example. Do you remember your Christmas holidays last year? I hope you had a great time with your family.
Am I right, if I say that most of us want to relax or recharge ourselves during Christmas holidays? I guess, yes. The same situation is on the Forex market. It has to be recharged as well.
I will never advise you to trade on a live account from 24th of December till 10th of January or during other holidays. And here are 5 crucial reasons to stay away from trading during Forex market holidays:
• Low liquidity
The main reason of low market liquidity is a small interest of “Forex lions” (hedge funds, market leaders, banks) in selling or buying the currencies during the holidays. These “Forex lions” know their business and prefer to lay on the beach with a glass of Martini and cigar rather than staring in their PCs. They give us a hint – do not trade.
• Low volatility
The evidence of low volatility is a shrinking of currency pairs’ swings during the day. As I mentioned before, top Forex players are out of the game. That means no one can produce a sizable interest in some particular currency pair. The result is a ranging market. So, there is no possibility to make a decent profit.
• Broker’s trap
It is well-known that Forex brokers are used to raising the spread during the bank holidays. It happens due to low liquidity and as a result – small amount of bid and ask propositions.
It is not possible to indicate the exact date when the broker is going to raise the spread. So, do not forget to check the spread before entering the trade, if you don’t want to pay extra commission to your broker.
Spread decreasing to ordinary market indexes can be counted as the ending sign of the holiday trading period.
• Unpredictable market conditions
Due to low market liquidity and volatility, the price can move unpredictably. It may swing in 15 pips range the whole day or rise dramatically in a minute. There will be no chance for you as an ordinary trader to react to those market movements. By the way, do not use your trading strategies or automated expert advisors too.
As a Forex software developer, I can say that most of the Forex systems are programmed to follow strict rules based on technical indicators. During holidays, the market can mislead the sophisticated algorithm of your top reliable Forex expert advisor that may cause huge losses for you.
• Recharge yourself
Have you ever heard that overtime work and emotional burden can harm your health? So, holidays are the great chance for you to relax or take a deep breath of fresh air before continuing your long run.
Holiday Forex trading is not the best activity for such days. Better to play with your children in the garden or visit your mother-in-law than trying to follow EUR/USD trend at 21:00h on December, 25th.
Wishing you and yours the very best,