Beware of Trading on Public Holidays!

17 ago

In this educational article, we will discuss why is it recommendable not to trade during the public holidays. I will explain to you how banking holidays affect the financial markets and how it may impact your trading.

WHY???

🏦 The main source of problems comes from the fact that the big market players like:

banks,
hedge funds
investing firms

are absent.

Similarly to ordinary people, bankers and investors prefer to spend the holidays with their relatives and friends instead of staring at charts on Holidays.

HOW???

But how does it affect the market?

Big players are the main source of the market liquidity.

The liquidity itself is the measure to which an asset can be quickly bought or sold in the market at a price of its quotes.
Therefore, when the big players are missing, the market liquidity drops.

WHAT???

1️⃣ That fact instantly reflects in the market spreads.

They become substantially bigger, directly increasing the costs of each trade and making it problematic to open a position at a desired price.

2️⃣ Secondly, low liquidity leads to a decrease in volatility.

The market becomes weak and indecisive.

As traders, we make the money on market moves. Our goal is to catch a bullish or a bearish wave. Their absence deprives us of profits or, at least, dramatically decreases them.



Look at a chart above, it is EURJPY on a 4H time frame. Look how weak and boring the pair was in US Independence Day - official US banking holiday.



And here is how weak and slow was Gold during US Independence Day on an hourly time frame.

3️⃣ Thirdly, when the liquidity is low, even small market participants can move the market.

It dramatically increases the probabilities of false signals. Relatively low trading volumes may manipulate the market, substantially decreasing the efficiency of technical and fundamental analysis.



Look at a density of false breakout on Dollar Index DXY on 15 minutes time frame the 19th of June - Juneteenth National Independence Day in US.

All these breakouts were the manipulations and false signals.

The increased costs of trading, low volatility and manipulations should have convinced you to stay from charts during the holidays season.

However, the main reason to not trade on holidays is much simpler.

Holidays give you an opportunity to stay with your family, to take a break, to recharge and relax. Even a part-time trading is very exhausting and requires a constant attention. Let yourself be distracted and return after holidays.

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