Bank Holidays And Why They Matter To Forex Traders
Today I come before you as a wounded soldier. This week, more specifically at the time of writing this article, I was caught asleep at the wheel. It happens to the best of us and it’s important to recognize when you are out of balance as a person because your imbalance, whether it’s physical, emotional, or mental, affects your trading results directly… As I am about to explain to you in a second.
The date is the 3rd of July and this week I’ve been mentally preoccupied with trying to get back into a routine since the winter started here in South Africa and the COVID enforced lockdown hasn’t made it any easier.
I’ve been feeling tired in the mornings and energetic at night. In my attempt to get my body back on track I was able to pull a small profit from the market until this day. After trading the way I usually trade, I noticed a drawdown revealing itself throughout the day.
I’ve been following my plan, eliminating any emotional trading and distractions but this drawdown seems to be persistent. At this point, I’ve already given back my profits for the week and then some. I decide to take a back seat and look at the market, I notice that the pairs I’m trading haven’t moved at all and the day is almost over.
How could this be? At first, this looked like consolidation but it’s not normal for pairs to consolidate the entire day…Unless, someone with big money, AKA my money, is on holiday!
I immediately feel like kicking myself because I haven’t remembered one of the most important days in the US. The 4th of July (Independence Day for those who don’t know) is on a Saturday this year which means people are off on Friday which means Banks are closed. No Big Bank money means no trading, which I clearly could’ve seen on any economic calendar.
SIDE NOTE: If you were confused about who really moves the markets, take a look at the crickets you hear in the markets when the EUR and US Banks are on holiday. Price literally comes to a standstill even though there are traders all over the world placing trades. Banks Move Markets!!
The case study above highlights the importance of Liquidity, Money in the market because without money in the market price does not move. Funny enough I realized price hadn’t gone anywhere by looking at my transaction history and seeing that my bias kept changing so I had bought and sold pairs within hours of each other meaning a trend-following strategy would have been slaughtered (which it was) and for me to realize this at the end of the day made me feel disappointed.
You cannot believe the amount of defeat I felt in the instant that I realized all of this. What made this situation worse is not that today was a bank holiday but today was a US Bank holiday. The big banks that move the markets are in the US. It is important to note bank holidays because you see a drop in liquidity so trends aren’t that big anymore.
But US Bank holidays need to be marked in RED pen or an alarm or SOMETHING, US Bank holidays don’t result in a drop in liquidity, they LEAVE with all the liquidity. Understand that. EUR bank holidays are important to note as well but you might be able to get away with it.
The problem comes when you have USD as a base or quote currency in whatever pair you’re trading when it comes to US Bank holidays. I had been focusing on USDJPY and GOLD this week and realized later that pairs like GBPJPY and EURAUD were business as usual.
What this tells you is if a country has a bank holiday, tread carefully if that country’s currency is a base or quote currency in the pair/s you are trading. Small things like this contribute to your bottom line at the end of the week or month. Simple Avoidable mistakes like that are all it takes for newbie traders to quit.
The string of losses can seem like a mystery because what worked yesterday and last week and last month suddenly wasn’t working at all and so you feel like the game is rigged against you but if you had the knowledge you would know that the sky is not falling and nobody rigged the game, you were just playing by yourself (with no liquidity).
Don’t feel discouraged. This information is publicly available and it’s free (from places such as Daily FX and Forex Factory) but you have to do the work and due diligence and not fall for such unforced errors over and over again. Dust yourself off and do better next time.
Don’t bet the farm.
Don’t lose your shirt.
Cut the L.
Keep the W.
Bank Holiday FAQ
Yes and No. I’ve found that Major Bank holidays are the only ones that result in consolidation. USD and GBP Bank Holidays usually have this impact.
Fundamentals shouldn’t sway you much if you are a technical trader but depending on the length of your trades they can play an important role.
If you were confused about who really moves the markets, take a look at the crickets you hear in the markets when the EUR and US Banks are on holiday. Price literally comes to a standstill even though there are traders all over the world placing trades. Banks Move Markets!!