Why Traders Need To Be More Selective During Summer Months
Whether you’re part of a trading community platform or are a trading expert, one of the first things you’ll notice is how summer is a challenging period to trade. Apart from all the holidays and monumental events, summers require traders to be more efficient and careful instead of making big moves. Among many others, one of the key reasons for the struggle in summer months is that investors often temporarily exit the investment market for summer holidays.
This ultimately results in low liquidity levels and extensive volatility in the financial markets unless the trading volumes are incredibly low. Summer is also a time when it’s hard to easily predict the price behavior and the overall stock environment. These are some of the key reasons why trading experts and community platforms often advise beginners in options trading to trade during the months between November and April instead of the time between May to October, regardless of the time zone and country they’re trading from.
Numerous studies and observations conclude that summer isn’t the best time to try your luck as a trader. For instance, data from the financial markets in the UK often regarded this phenomenon as the ‘Halloween Indicator’, primarily because of how trading from May till October may result in significant losses if not done selectively.
It’s safe to say that you should always remain vigilant and selective when choosing swing trading or day trading strategies during this time. With options trading for beginners, it’s always easier to know the dos and don’ts of trading in summer. Read on to learn everything you should know about the Halloween Indicator.
Why Do Stocks Under-perform in Summer?
As mentioned earlier, the summer months are usually when stock traders and investors temporarily sell their shares before returning back to the financial markets in the winter. Research on this phenomenon shows that winters have historically been the best possible months for trading throughout the US and the overall global markets. Therefore, the spring and winter months are regarded as a good time to learn options trading for beginners than the rest of the year.
This research discusses various historical events that indicate that the beginning and end of every financial year are ideal for market players to trade resiliently and seek the financial freedom they’re essentially looking for in the stock markets. It suggests that traders tend to enjoy 7% returns in the winter than summer, where the stock returns are usually stuck at 2% or less.
While this percentage of returns is usually seen among the top American financial institutions and leading companies, the financial markets worldwide also indicate a similar pattern, increasing the need for traders to be more selective during summer.
Navigating Your Trading Routine in Summer
With that said, you might be wondering what you can do as a day trader to be more selective during summertime and avoid losses as much as possible. It’s true that the financial markets can often become incredibly volatile in summer for you to navigate through them efficiently.
This also leaves very little to no room for risks, especially if you’re just a beginner in options trading. Fortunately, there are still some things you can do to navigate your trading routine in summer safely without significant losses. Here are some things you should remember.
Use a Single Strategy
As tempting as it may sound, it’s never a good idea to go for different day trading strategies when trading in summer. This will protect you from getting distracted by different trading environments and will allow you to focus on a single and more efficient strategy that can deliver successful outcomes with little to no losses in the future.
Stop After 11:00 am
The best time to start trading is before 11:00 am every day in summer, primarily it’s the peak time in the stock markets. However, you should never risk trading after this time. It’s always better to use the rest of the day to simply review your trades.
Avoid Exceeding Five Trades Per Day
Taking more than five trades can significantly increase the likelihood of you losing all your money if you’re not smart about it. Therefore, when trading in the summer months, make sure you’re playing safe by sticking to five trades a day.
Factors to Look Out for When Trading in Summer
As a beginner in options trading, you may be wondering what to be mindful of when trading selectively in summer. Here are some factors that’ll improve your profitability when day trading during the summer months:
Financial Announcements by Companies
It’s always a good idea to look for market movements during times when companies roll out financial earnings for a specific quarter during summer. This can help you shape your swing trading strategies accordingly.
Administrative Changes in Companies
Managerial roles and their changes also affect stock prices and allow them to go up in favorable situations. Make sure you’re looking out for such occurrences when trading in summer.
Major Acquisitions and Mergers
Some important companies’ mergers and organizational acquisitions can also make the stock prices go up, even if it’s done in summer. Therefore, this is an essential factor to look out for when determining your day trading strategy in summer.
If you’re looking for a trading community platform to learn options trading for beginners, make sure you check out the pricing plans offered at Trading Alphas. It’s one of the best places to learn swing trading strategies and the basics of day trading for maximum financial freedom. Contact them to learn more today!
About the Author
The author is a trading expert affiliated with one of the leading trading community platforms, Trading Alphas. With years of experience and knowledge of foreign markets, he continues to assist new traders by offering options trading for beginners along with day trading and swing trading strategies that can help them master the various intricacies of trading for financial freedom in the longer run.