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Trading Education Posted by Team Topstep July 10, 2020

Trading Cure for the Summertime Blues


Summer is now at full speed, and even though the world remains gripped by the COVID-19 pandemic, the volatility observed in the spring months is now becoming more of a distant memory. Historically speaking, many markets are trading in wider ranges than in past summers. Even so, after being spoiled by the volatility earlier in the year, you may be suffering the market adrenaline decrease.

Summer Bummer

For some traders, there is a psychological response to each summer. Take, for example, a trader whom I closely consulted. I inspected five years of his account records and noted that he suffered losses in the summer period each year. Meanwhile, he was tremendously successful each year on an overall basis. Summer was his Achilles Heel.

Upon further dialogue, this trader became self-aware that the market personality seemed to change during the summer, which resulted in multiple trading and psychological responses. Following my interaction with this trader, I recognized the essential need to develop an approach to slower market periods.

The first suggestion I will make is to take a vacation. No matter who you are, or what successes you might have had this year, it’s likely that these markets have created fertile ground for stress. Sure, because of COVID19, this particular summer might be less attractive than its counterparts in terms of vacation excitement, however, even if you don’t have an interest in traveling, there are alternatives that any trader can take advantage of.

For instance, one fellow trader told me that during this time, instead of traveling for vacation, she is getting caught up on significant horticultural projects in her yard. For myself,  I am working on home repair projects during this time, giving me something to do

Invest in Yourself

Another way of countering the summertime trading slowdown is to keep your mind stimulated. One way to do this is through education, which simply might be reading a book. Another approach could be by identifying a growing edge and turning that into a focus. For example, I know one trader who has excellent skills in technical analysis but insisted during this summer, that he would engage in reading on the topic of fundamental analysis, which he considered his trading weakness.

An additional way you might invest in yourself could be by trying out new tools or resources. I have been looking for a more sophisticated options program, but, during the volatility peak, I couldn’t spare any attention to my research and development. However, over the last few weeks, I have begun to explore and take trials from several vendors as I look for the most optimal software.

A further measure might be to develop ideas and systems that could lead to further stability if not greater profitability. For instance, one may pick up additional markets to learn to trade during slow periods or implement ways to enhance their trading by the addition of option derivatives to their strategies. Furthermore, one might take this opportunity to develop a system for slower markets in their preferred market.

Don’t Compound the Problem.

No matter how you may choose to utilize your time during this summer, if your traded markets are slowing down, there are some reactions that you should consider avoiding. The primary pitfall that you should be aware of is the tendency to increase. To compensate for slower markets, and fewer trading opportunities, a trader may increase their position size or trade frequency.

While these could be beneficial responses in some instances for some traders, you should think before you do so. If you are trading larger or with more frequency, then you are likely breaking patterns and rules that you had established for a good reason.

When you increase your trade size in slower markets and suffer a losing streak, you have fewer quality opportunities to recoup your balance. This often leads to the other problematic tendency, which is entering more trades to give you more of a chance to find that winner. This thinking is often counterproductive because many times, a trader will disregard their ordinary filters, and take positions without strict criteria, which only compounds the problem.

In my years of trading, along with consulting and analyzing the results of other traders, this is the primary pitfall of summertime trading that I have observed. Fortunately, this is an avoidable tendency with proper awareness and preparation. If anything, I would suggest that you consider fewer trades with stricter criteria during slower periods.

Finally, don’t lose interest! Trading can be lonely, and this is magnified when the markets are slow. However, I encourage you to keep your mind engaged, using at least some of the recommendations of this article. With all of the social platforms that exist, there is no reason to be without a trading community where ideas are shared, and support is offered.

Perhaps you have your ideas that you can share in the comment section below, and I look forward to the conversation.