Speculative attacks on markets have been thwarted repeatedly by the various interventions of governm...
4 Ways to Get Your Trading Ready for Summer
04/08/2013 6:00 am EST
In most parts of the US and Europe, this winter has been positively arctic. Record snowfall, freezing temperatures, and howling wind. It can be a downer, even for the hardiest of souls. Even then, most traders are in the office, focused on their screens and their results and not paying any attention to the weather.
Summer may seem like the furthest thing from your mind, but you should start thinking about it now. It offers an opportunity to reflect on our trading progress. As the middle of the year, it’s a readily identifiably halfway point; given the changes in market conditions over the summer, we usually have to think about making some changes or improvements anyway.
Turning our thoughts to the summer, there are four things we want to think about the summer time, both to react to likely changes in the markets and also to work on ourselves.
1. Schedule in Relaxation
Late sunsets. Warm weather. The beach. Kicking around a ball with friends. Grilling outdoors. The summer is all about relaxation and it offers the ideal time to schedule in some rest and relaxation.
In trading, as with any really competitive activity, there is the obvious tendency to be a workaholic. There is always that extra bit of research to do; another chart to look at; more reviews to conduct. But sometimes, we just need to clear our heads and to take a break. We will come back to our work with renewed energy and focus, and hopefully benefit from a fresh perspective.
We are not robots. We need rest and downtime to perform at our best and to stay in peak condition. We actually perform better if we rest, rather trying to go on and on forever. Indeed, studies of elite performers have underlined the importance of scheduled rest periods for the improvement of performance. It is only the combination of intense, concentrated activity followed by genuine rest that leads to skill gain. Much like lifting weights only every other day, the gains come from this rebuilding process—it’s all about the day of work combined with the off day.
By understanding this growth process, we can fight the enemy of relaxation—guilt. How many times have we been on holiday and thought “Gosh, I need to get back to the office?”. It could be because we feel like we’re missing opportunities or “not earning our keep” if we’re out of the office. Rather, we need to realize that taking off some time for ourselves allows us to grow and to be that much more effective when we get back in the saddle. A proper rest helps us in our development, rather than hindering it.
This summer, take advantage of the weather, friends, and good cheer. Look for ample recreation opportunities. Schedule in some relaxing outdoor activity around work. Take a vacation and truly disconnect from the office, even if it’s only for a few days.
NEXT PAGE: Understanding How the Markets Perform|pagebreak|
2. Seasonality—Understanding How the Markets Perform
Most markets demonstrate strong seasonal patterns. We can all think of famous aphorisms to describe this seasonality, like “Sell in May and go away” or the infamous “Santa Claus rally.” Some markets display seasonality for very obvious reasons linked to the underlying product—for instance, soft commodities, which move based on weather conditions—whereas in others, like bonds or stocks, it’s just pattern recognition.
The markets that you specialize in have no doubt displayed some strong seasonal patterns in the past. To get ready for the summer, research those seasonal price fluctuations and think about how you will take advantage of the opportunities.
Are you going to be looking for a typical seasonal trend to assert itself? For instance, if the rule of thumb is to sell stocks during the summer, then you will be looking to short rallies in the market. Similarly, if your market historically rallies in the summer, like oil, then you would spend the summer looking to buy dips as a low-risk opportunity. Or does your market typically become more range-bound in the summer, as opposed to more trending the rest of the year? In that case, you would look to fade any extreme moves and otherwise to sit on your hands.
In the run-up to summer and its changing market conditions, you have the perfect time to prepare to be on the right side of seasonality. Do extensive historical research and know your market’s historical quirks and patterns, you will be ready to seize opportunities as they occur over the summer.
3. Changes in the Markets
Seasonality is one way in which markets change over the summer—certain trades become better risk/reward setups in the summer than they would be at other times of the year. But the markets can change in other ways that you need to prepare for—both by anticipating those changes based on research and preparing for their impact on your trading style.
For instance, equity and bond market participants talk about the “summer doldrums” when volumes plummet. In such a case, you should expect worse fills and more “noise” in the price action. Armed with this knowledge, you could come up with several potential adjustments to compensate—such as setting wider stop loss points and scaling your entries and exits. That way, your trading strategy would be better adapted to the summer conditions and profit better with less frustration than would otherwise be the case.
While it’s a truism that the markets are ever changing, there are some shifts that we can anticipate better than others. By doing our homework and looking at past market conditions, we can make educated guesses about what the future will bring us. That homework turns into another source of “edge” for traders, and hopefully will make you better prepared and more profitable.
NEXT PAGE: Go to Summer School|pagebreak|
4. Summer School—Use the Chance to Study Up on Something Extra or Extra Curricular
Remember when you were a child and dreaded the thought of summer school? Well now that you’re grown up, you’ve probably realized that learning new things isn’t actually so bad—and arguably quite necessary for your continued development as a trader. Summer is the perfect time to learn or develop new skills to develop at your profession.
Since you can anticipate having more vacation or downtime, you should have some extra time to devote to study. There are many options—you could use your “beach reading” time to catch up on some of the classic books on markets, like Market Wizards or Reminisces of Stock Operator. You could learn about new markets or a new approach to markets that you’re already trading, by reading up and doing the necessary research. You could pick up a skill that would help you become a better trader or do better research, like computer programming, statistics, or getting better data sources. Lastly, you could engage in some self-review, going through a half year of trades to see what’s working and what could be better.
Just like in the summers of your childhood, there are some people who will keep learning by themselves, and others who need a more structured environment—soccer camps, math camp, or whatever. Similarly, you can try to create a more structured environment for your study. You could choose to attend classes or seminars that meet regularly. You could organize a group of a couple colleagues or friends to meet up regularly and discuss what you’ve been learning, using that as a spur to get the work done. If you need the structure to spur you on, then get it set up now to take advantage of the summer doldrums.
Remember, summer school is no longer a bad thing—unlike when you were a kid, it could end up making you richer.