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To Trade or Not to Trade on Holidays and the Problem of Liquidity

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The Forex market is known as the most liquid financial market. The market runs 24 hours a day and gets investors from all around the world. This is what makes it be the most exciting market to trade at; however, during holidays the market is not as exciting as it usually is because of less liquidity.

In spite of less liquidity during holidays, some traders still trade in the market. They do not want to waste a chance of making some extra money. A question may be raised whether it is fruitful to trade during holidays or not? Before answering the question, I would love to draw attention to the procedure of moving the market.  It moves because investors keep buying/selling in the market. The more investors invest money, the more it moves. Eventually, it creates more breakouts, confirmations and entries. On the other hand, less volume makes the market get sluggish, and this causes fewer breakouts. Thus, there is no confirmation and no entry. In a less liquid market, the price gets trapped within a range.  It is a difficult task for a trader to choose a direction and trade in a ranging market. There is a saying ‘Let the market make the first move’.  The most widely used trading strategy is letting the price make a breakout, coming out from a range, waiting for the confirmation and then taking an entry. That is when a good risk and reward ratio can be maintained. Since it is difficult to get breakouts even in intraday charts, usual big time frames’ breakout is beyond thinking. In the case of ‘gap breakout’ (abrupt movement) in big time frames, traders are advised not to jump into those until the market gets settled.

A liquid market tends to see price movement with a steady pace whereas a less liquid market runs at a slow pace. However, in the case of extremely abrupt movement, a gap is created on a chart. If a Stop Loss is set in between the gap, it will not get hit. This causes more losses than a trader expects at the time of executing a trade. In the case of ‘gap breakout’ (abrupt movement) in big time frames, traders are advised not to jump into those until the market gets settled.

It means trading at the right time considering the liquidity is vital or it might hurt a trader badly.

Trading is a business just like other businesses are. Traders do take the day off or go for a holiday. Since this market is run globally, so the usual liquidity comes from the participation of all the traders, hedge farms, banks from all around the world. In the case of less participation by these participants causes less liquidity. Weekend, Easter Sunday, Xmas are some typical occasions when the market presents less liquidity. Especially,  those holidays widely celebrated in America and Europe have serious influence in the Forex market’s liquidity.

Many traders trade with EAs. Thus, another question may be raised as well whether trading with EAs are fruitful or not? On a less liquid market, EAs do not work well too. In fact, EAs algorithm may help trigger an entry, but because of the less liquidity, the entry would not reach to the destination.  In the end, 80% of such trades make a trader lose money.

Many traders get carried away and get too excited about the market and trading. Holidays or less liquidity does not hold them back from taking entries. To some extent, it might get them some pips. However, considering the risk, it is not worth it. There is always another day. The opportunity will come again, and we must not forget this.

 

 

 

 

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