When you begin trading in the forex market, you can learn a lot of market signals and strategies through your experience and by observing how other traders and brokers conduct their transactions in the market. Over a more extended period in trading, you can gain experience and predict some of the market signals and price movements correctly by observing charts and other indicators on the platform.
You need to identify a reliable forex broker to conduct your forex trading. Similarly, a good forex trading platform will guide you to provide trade signals at the right time. Based on the clues from the platform, you can decide to continue buying or selling in the market. The brokers and traders will also look for signals from the seasonal performance of currencies. Based on the past performances, they can predict the trend of a currency pair in a season. This article looks at some seasonal trends in the forex market.
When dealing in the forex market, you realize the common currency in most trading is the US dollar. Depending on the market situation, you either buy the US currency or sell it. So, the trend in the market is either pro-dollar or anti-dollar. According to reports, the dollar is the component in more than 85 percent of all transactions in the forex market. So, a trader needs to make fundamental and technical analyses of the currency to understand the market trend.
Traders determine the strength of a currency based on its past performance. They study how it performed for a particular period or month for many years. For example, the US currency shows trends of weakness for a specific month, and the dollar can go up historically for a period. Traders look for patterns or cycles to determine the future course of action. If you have an idea about forex seasonality, you can plan your exit and entry options based on your studies of past performance, patterns, chart analysis, and other technical analyzes.
You can examine the behavior of currency prices in the past. When you consider only the price activity, there is a possibility that you can observe some seasonality patterns as well. But you have to realize that there is no guarantee that a particular historical pattern will repeat every year. If a specific pattern gets repeated 90 percent of the time, a trader can term it a significant signal.
According to studies, around 70 percent of the time in October, the USD/JPY pair ended higher. However, experts are clueless why the currency pair is showing a positive bias in October. If a trader has this specific information regarding the currency pair’s performance in October, they have the option to adopt such a trade strategy for the month. According to some brokers, it is good to go for short USD/JPY trades in October. They say it is better to avoid a longer-term short USD/JPY in the month.
Similarly, the month of August can also show forex seasonality in USD/JPY pair. According to studies, the Japanese yen had been performing well during August historically. So, if you are pairing the yen with other prominent currencies such as the dollar, euro, pound, etc., you have to approach August cautiously. This trend doesn’t have to continue every year, but traders who have such information can decide on their trading strategies accordingly. All the major currencies can fall in August against the Japanese currency.
May Impact for USD/CAD
The currency pair of USD/CAD also has a history of showing seasonality in May. Many experts suggest that May is a negative month for the USD/CAD pair. Similarly, October and November can be solid months for the currency pair.
Approach of Traders
When you have such information on seasonality, you have to be clear about your approach to the market. The seasonality trends don’t need to repeat every year. You can consider it one piece of information that can help you progress in the trade. You have to consider other factors in the financial sector before arriving at a final decision. Many factors can influence the price movements of a currency. A trader should look to gather all information possible from different sources to help make the right decision in trading. News developments like the announcement of GDP figures, inflation numbers, job data, interest rates, etc., can potentially cause a negative or positive impact on the market. As a trader, you can observe the trends in the market by reading the chart with the help of a good forex platform and making the correct analysis to impact forex trading. You will surely make some mistakes in trading, but you can make profitable trading over time through observation, research, and experience.