Unlike most other markets out there, Forex is a 24/5 operation – meaning that from Monday to Friday, you can trade at any time of the day or night. This is perfect if you are one of those people wanting complete flexibility as to the times you trade. However, it can also be a bit of a nightmare for those who are followers of the news.
Fundamental trading strategies (or news trading) is basically the basis for which people use the news to base their trading decisions. For example, any of the following events might trigger a trade if someone was carefully following the news:
- Surprise interest rate increase or decrease.
- Surprise economic data.
- News that a currency is being artificially tampered with by authorities.
This is just a selection of the possible news stories which could turn a relaxed, off duty Forex trader into a raging financial mogul in a matter of seconds.
Why the Forex Market Gets Tight
When we talk about a “Tight Forex market” we are usually referring to a lack of trading on a particular currency pair, and therefore a very small amount of price movement over a given period.
For example, if we said that the USD/JPY was trading “tightly”, it would imply that the daily range of the currency pair was extremely small – perhaps a matter of 30 to 50 pips.
There are other times when we would say that the market is tight also. In some cases, we might refer to the entire market as being “tight”. This usually happens on a select few occasions at about the same time each year – with one of these periods, of course, being: summer.
Summer Trading is Tight Trading
Even though the Forex market is still open each week day during summer, because many finance companies and banks choose to send their employees on holiday during these times – the liquidity of the entire market is often low. In other words, it’s not just one single currency pair which is affected, but all the currency pairs.
If you are trading during summer or if the American summer happens to be your winter – you need to adjust your trading strategy to incorporate this decrease in liquidity. Perhaps consider more position trades, rather than swing or scalp trades, to attempt to mitigate the additional risk of the low liquidity during the major holiday breaks.