During the summer, it’s not unusual for market action to slow down – sometimes way down. On those lazy, hazy summer trading days, it is more difficult to find great opportunities – and it can be a risky time to trade. Here’s why.
Why is summer trading so slow?
Well, a lot of traders go on vacation, so that’s one reason. Money flows are also a major reason. Big institutions that gather cash (like mutual funds, banks, hedge funds) may have little to invest. As a result, not much money is flowing into the markets. Finally, markets may be tired and due for a pullback.
On slow days, the market trend grinds to a halt. Prices are weak, volume is low, momentum is absent and volatility is muted. This is not necessarily a bad thing, but it’s a dangerous time to be trading. Gaps in the bid/ask spread are wider than normal, and extreme moves occur without warning as there is little price depth.
How to manage slow days
On slow summer trading days, I take a break. I may take a walk, catch up on my reading, review (and make notes on) recent trades or study charts. I do something that will make me a better trader, even if it’s not actually trading. There is absolutely no reason to force a trade if the opportunities are weak or nonexistent.
If your portfolio is not riding high, it can be really tempting to jump into a mediocre trade. Resist the temptation! It is much more likely that you will hurt – not help – your portfolio.
I also turn off the media noise and focus on the charts and technicals. This keeps me out of harm’s way, not doing something I’ll regret later.
Sit tight, and continue to learn and grow as a trader. When the trading environment improves, you will be ready.