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The top four summer strategies to beef up your portfolio

by , 19 September 2014

I remember my childhood days like they were yesterday: Summer meant long road trips, cold ice cream, camping trips, park rides, and lots of outdoor games.

These days, summer means irregular volatility, thinner liquidity, and higher margins for me. (And cold ice cream, still got to have ice cream.)

Liquidity tends to choke up in the summer, because this is the time of year when stock traders, fresh from the earnings season, usually book their profits and ditch the trading floors for powdery white sand beaches.

Since the currency market is closely tied to the equities markets, it's no surprise that we also see our Forex liquidity dry up in the summer. Among other things, this usually results in irregular volatility and higher margins.

But don't worry! Here're four strategies that you can add to your toolbox for next few slow, hot months:

Summer strategy #1. Make extra gains even when the market is moving sideways
 
Traders usually take Mondays or Fridays off on extended weekend vacations, so it’s difficult for price action to sustain clear directional moves beyond the week. 
 
You can take advantage of these sustained ranges by applying tools that tend to work best on sideways moving environments. Aside from marking floor lines and ceiling areas, using tools like Bollinger bands, ADX, Stochastic, and RSI might come in handy.
 
Summer strategy #2. Consider carry trades: Buy strong currency against weak currency
 
No time for charts in the summer? No problem! Carry trades are a great way to make a few bucks if you’re not planning to stick around the charts much. 
 
Here’s how a carry trade works:
 
Look for a currency pair that moves in the direction of the currency with the higher interest rate and boom – small profits! 
 
Of course, you have to check your trades once in a while to make sure that the pair isn't moving in the direction of the currency with the lower interest rate. Or else it’s boom...margin call! 
 
Summer strategy #3. Don’t just listen to the news, benefit from it too!
 
One benefit of thin trading is that it inspires volatility spikes, especially around news releases. 
 
You can work this to your advantage by studying a news report and its probability of hitting or missing expectations. Also, study the market’s typical reaction to various news announcements such as Non-Farm payrolls, ECB, employment levels etc. 
 
Just make sure that you consider as many scenarios as possible in your trading plan!
 
Summer strategy #4. Take advantage of summer tendencies
 
If you’re still sticking to your charts like glue this summer, then you should at least know how your favourite currency pairs behave during the summer months and try to see if you can take advantage of any opportunities. 
 
Check out these currency pairs EUR/USD, GBP/USD, USD/CHF, USD/JPY, AUD/USD, USD/CAD, and NZD/USD to see their summer tendencies the past performances!
 
Remember that low liquidity doesn’t necessarily mean fewer opportunities. It just means that you need to adapt and be ready for a different trading environment if it shifts. 
 
With the right plan and careful execution, you can be as profitable (if not more profitable) in the summer months as in regular months! Enjoy your weekend as I’m ditching my trading desk to enjoy the white sandy beach. 
 
Remember to save money and money will save you
 


The top four summer strategies to beef up your portfolio
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