Trading Around Your Annual Vacation

Many of us will be taking vacations during the July and August period now that the northern hemisphere summer is upon us. The question is what do we do about our trading? Do we take a complete break? Do we leave one or two trades on, but not open the charts till we return? Do we plan to carry on trading whilst we are on holiday with family and friends?

The answer will vary from person to person and their individual trading styles and preferences but it is as well to think through the options beforehand so that at least you have a plan and can adhere to it.

Bear in mind that the big players, the hedge funds, the corporations and banks will also have most of their staff on vacation during some of this period and, although they will no doubt maintain a skeleton staff throughout, their activity will likely be subdued.   It is also likely that large pension funds and other entities with long-term intentions in the market will effectively close off their books and just hold their positions until their offices open after the summer break.

All this means there will be a lesser volumes so therefore, higher volatility during this period and traders need to be mindful of this.  On the flip side, there can also be some opportunities arise as most are away from their desks.  Even if you live in the southern hemisphere and are not taking a vacation, you will need to be aware of this effect on the markets worldwide.

Some traders prefer to take a complete break and enjoy their time off without thinking about the markets.  This gives them a refreshing period with family and friends minus the distraction of work and with the peace of mind of knowing that their trading is closed. Also, being away on holiday, and in a relaxed state of mind, is conducive to reading a couple of books on trading and I always enjoy doing this.  At least my mind is absorbing some trade related topics and it's not so intrusive on those about me.

Others like to close off all their positions but then take a “holiday trade”.  This is a trade that they have been watching and they think will go well over the longer term of the summer break.  This can work well and it's something that you might like to 'paper trade' so that you can experience the effect but not have your trading account exposed during this time.

On this subject, I have just recently had a client who placed three 'paper trades' while away on vacation for three weeks.  On his return from a fishing trip in the USA, he reported two losers for -1% each and one winner for +3.9%.    Net result +1.9%.  Guess what he'll be doing on his next fishing trip?

When taking a vacation trade I still apply all the TWP trading strategies that I use during the year.  The one difference is I will use Daily, Weekly and Monthly timeframes as my stalking and set up charts.  I would still only take a 1% position with a robust stop but have a far off target in the “five to one” or even “ten to one” range.  I would then manage the position on my return if it were still open.

In particular, I use the weekly chart to establish the optimal chart structure with the monthly used to determine the stop and targets. Whether I am trading a Trend Flow or a Momentum Breakout style of trade, it is just a matter of looking for those same essential criteria to be present on the weekly chart, all as I would do on the lower time frames in an intra day type trade. If triggered in then this trade will become a long running swing trade so I look for to place my target just ahead of technically sound levels based on the monthly chart. Historical major support and resistance levels, key levels like parity in the case of Forex or significant round numbers in the case of commodities are obvious choices for targets. This becomes a 'set and forget' style of trade and it's a bonus to get back home to find a profitable trade either in the account or at least well underway.  However, if the trade was stopped out then the acceptance of the initial risk of placing the trade should prevail with little or no adverse effects on the trading year about to start.

Continuing to trade while on vacation is a third option but I would question the quality of the vacation time and the impact this might have on family and friends.  It's for you to decide.

On this matter I recently had a client send in his weekly report during a time he was on holiday and he said:  

“It’s amazing to think that with profitable trading, I could have a life like the one experienced this past week (on vacation yet still connected to the markets) and able to trade when markets set up.”

This, of course, is one of the great things about trading! Wherever in the world we are and whatever time frame we are in, the markets will always be available to us.

But the best response I've had is from a client that just recently returned from his vacation and he told me: 

“It was great to get away but I sure love getting back to the charts as well."

Whatever your preference is and whatever your previous experience has been, I think it's important to make a plan and stick to it before you head away on your well-earned annual summer vacation.  

By Graeme Kennerley

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• Wednesday 9th July 2014 @ 4pm New York, 9pm London, 6am Sydney (next day), 8am Auckland (next day)

Regards,
The TWP Team
www.tradewithprecision.com