Recently one of the trainees in the chatroom asked me if the slow currency markets are normal as we conclude the summer months of this year. My answer? Yes, we are still in holiday mode. I then explained my theory as to why we experience slow markets in general which is what I am going to explain to you in this article. More importantly, is anyone making money in this? The answer is yes and I am going to highlight some of the recent performance from another one of our trainees.
As far as the markets being slow, here is what I think. Currency markets, as well as the broader financial markets are not dominated by tiny players like us. They are dominated by governments, global banking institutions and very large money managers. These powerful market forces follow a routine. Why they following it the way they do is beyond me, but all that matters to me is that they follow it. Part of that routine includes going away in August, especially in weeks 3 and 4. There may be some outdated agricultural reasons for this behavior, I am not sure. The point is this: If the people who control very large amounts of money are taking a break, and they are all doing it at the same time, then there is no force behind price action.
What happens in this environment when the big guys are away? You still have lots of little guys who are trying to gain experience, or are too stubborn to know better and insist on forcing trades in this environment. As a result, you still have movement in the market, but it is very infrequent. A news report or some talk from a central banker can ignite a market move, but the follow through is extremely limited.
I do realize that big money taking a vacation is just one variable that can help keep markets quiet. It is not the only one. Complacent markets are the result of many variables coming together. Transparent monetary policy, lack of economic surprises, etc also lead to a very complacent market where there is no reason to fear anything. Fear is what creates large swings bullish and bearish.
Coming out of the summer months doesn’t mean we are going to return to more volatile markets overnight. It is a slow process. In my opinion, we won’t see a more normal environment until the beginning of October.
So the big question is: Is it worth trading in this environment? Does anyone make money? Yes to both questions. To give you an example we can take a look at some of the recent performance of my trainee Morgan. She has recently taken a number of trades in the EUR/USD, GPB/USD and AUD/USD. She waited patiently for setups which were spread out over an entire week. She knew enough to keep her expectations small and exited using predetermined limit orders for small profits. She carefully observed price action and waited for validation when after a setup appeared. In other words, she did not force trades, she just followed the process that she has taken her almost a year to get fully comfortable and confident with. She finished the week ahead and nicely. Take a look at one of her charts here.
She is a prime example of a committed student. She has worked hard to understand and implement the methodology that she has learned from me at SMB. She has been patient and used her mistakes and losing trades as learning experiences. She had an open mind from the start. Her foundation is now strong and she can move forward with her trading with enormous confidence. Is she an expert trading guru? No, she is still early in her learning curve, but she is so far ahead of the conventional, fearful, and unaware trader. She is ready to grow financially. This is where all beginners are in a hurry to be and never get there because they are in a hurry. You want to see progress in your trading? Be prepared to invest a year of training.
I bring up Morgan because she is a testimony to the fact that money can be made in such a slow environment and you don’t have to be a top trader. You do need a well defined methodology and the patience and flexibility to adhere to your process. The biggest obstacles are not coming from the market, they are coming from your own psychology.
Market activity and price ranges change constantly. We can’t point to one reason, and we don’t need to know why in order to operate profitably. Before giving in to your lack of patience, you need to reconsider your trading process if you can’t make sense of these market conditions. A robust methodology will allow you to operate in most conditions with some adjustment. The market is always right, you just need a way to understand it and then adjust. I hope you found this article informative. Please let me know what you think in the comment section.
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Marc Principato, CMT,
*No Relevant Positions
