December is a challenging month in forex. However, you don’t have to be afraid of it

December is considered quite a challenging month among forex traders. From the middle of the month, the liquidity on the market usually drops and there may be fewer opportunities to make interesting trades. However, this is not always necessarily a bad thing as other ways to gain profits appear in this period. And FTMO clients are in a good position to take the advantage of them.

In the financial markets (forex not being an exception here), we can observe various seasonal influences throughout the year. Commodities would probably serve as the prime example, stock markets also have their strong seasonal periods. In forex, seasonal influences are not as significant because the currencies of individual countries are more likely to be influenced by central banks and developments in the particular economies.

On the USDCAD pair, we can perceive seasonality in the period from February to April, when the Canadian dollar does much better. This currency is quite strongly linked to the price of oil, the price of which is rising in the aforementioned months, which has an impact on the USDCAD pair.

On the USDJPY pair, October is an interesting month when the dollar is usually doing well. Although the influence of a certain factor cannot be clearly identified, investors’ appetite for risk usually grows during this period, which is also reflected in the stock markets. Demand for safe-havens such as the Japanese yen is thus reduced (which is also reflected in the price of gold).

December without liquidity and trends

However, December is a very specific period in forex. While the stock market gets busy with the so-called Santa Claus Rally, for forex traders, the second half of December is considered a  challenge. Liquidity starts to disappear, big players greatly reduce their activity, and traders can expect occasional higher volatility, which also cannot be predicted very well.

The main reason for this is, of course, the Christmas holidays. However, one of the reasons that may also contribute to the situation is the fact that traders in large institutions providing the main liquidity in the markets (big banks & hedge funds) are paid bonuses and are not so interested in what is happening in the markets. In short, December results have no impact on their paychecks, so they need not bother.

The lack of liquidity leads to the fact that, unless a major fundamental emerges, the daily moves on individual pairs are either well below the long-term average or show unexpected swings. For some retail traders, it can also be a problem that their broker is artificially widening spreads at this time (if they don’t make money on lower trader activity, they want to at least make money on the spreads).

Traders trading trends during this period hardly find an interesting opportunity to enter the market. Long-term trend moves with interesting consolidations to enter are practically not appearing in the market. Many automated trading systems also experience a series of losing trades during this period.

Scalp or take a rest

Thus it’s primarily the volatile movements that offer opportunities, this period can be interesting especially for scalpers for whom risk is a daily bread (if they have a good broker).  Traders trading price ranges can also come into their own, but they need to watch out for false breaks of supports and resistances. Rising stocks, in turn, can benefit traders who focus on stock indices (the mentioned Santa Claus Rally).

Even those who choose not to trade, however, may not come up short. Traders can use the period without trading to backtest new strategies or to analyze past trades and fine-tune their strategy to make it more profitable in the future.

However, taking a break from the markets completely can also be the right solution for many traders. When someone is on a bad streak, or a prolonged losing streak, taking a break from trading can be the best psychological boost. Trading is all about psychology and any break, even if it may be forced for some, can help a trader to sort out their thoughts, recharge their batteries and start the new year with a clean slate.

10 + 10 for FTMO clients

FTMO clients can see that December does not have to be all about low liquidity and high volatility or spreads. Of course, the firm is aware that liquidity is limited in December and the markets may not offer enough interesting opportunities for traders. For all traders who wish to become FTMO traders and purchase the FTMO Challenge in December, the firm is not only offering a 10% discount but also a 10-day trading period extension in January. Traders who want to test their skills will therefore not have to stress in low volatility markets and can enjoy a few days off.