5 tips on how to trade profitably in the thin market
New Year's holidays are approaching, and most traders are preparing to end the trading year, counting profits and losses. The time of the thin market is coming - the time of big profits and lost deposits.
What is a thin market?
The classic definition of a thin market says that it is a market with a small number of participants, low volatility, low trading volumes and, as a rule, extended spreads.
In simple words, a thin market is a time when the basic law of supply and demand practically does not work in the market. There is not enough liquidity, because there are very few buyers and sellers, so any deal with more or less decent volume forces the price to overcome such a number of points, for which in normal times a fairly serious stimulus would be necessary.
However, such price spikes are short-lived, and the price usually returns to its original sluggish state.
When does the market get thin?
The market is believed to be moving into a thin state:
- At closing time. European session;
- In the second half of the Asian session;
- Before the release of important economic news;
- During bank holidays, the summer period (especially August), Christmas and New Year's holidays.
As you can see, the biggest period of thin market falls on the summer vacations (although in recent years, activity has been higher in summer) and New Year's holidays. At that time, currency pairs move in a narrow range of 10-20 pips and may show price spikes of 50 pips or more.
How to trade in the thin market?
Most experienced traders advise that during a thin market don't trade at all. But what should a trader, who decided to experience all the delights of such trading, do?
Perhaps the tips below will help you understand that the thin market is not so scary, and it is possible to make a profit in it.
Tip 1. Choose the right trading tactics
Forget about short- and medium-term trading. Waiting for an entry point in a normal thin market strategy can take a very long time. The ideal tactic for trading the thin market is similar to scalping. The optimal timeframe for trading is from M5 to H1.
Tip 2. No need to get greedy
Profit on a trade during a thin market is 15-30 pips, you should not expect more from the market. A thin market is not a price jumping at a breakneck pace in the 100 pips range. Most of the time it is a sluggish "saw", it is simply unsportsmanlike to demand anything more from it.
Tip 3. Set the Right Stop Losses
Some traders recommend putting a stop loss further away so that "stop hunters" won't reach it. Whether there really are such hunters or not is debatable, but the fact that with such stops will reach your deposit margin call - is quite likely. Therefore, the stop loss should be short.
A price spike can happen at any time and in any direction. There are few big players in the market, trading volumes are low, so the price easily passes the "iron" support and resistance levels.
Tip #4. Don't trust the indicators
Be careful. In the absence of significant volumes, technical indicators, technical analysis figures and candlestick patterns can give a lot of false signals.
Tip #5. Don't forget about the spread
This point applies to traders trading in accounts with floating spread. In order to hedge against the risks of a sharp price movement, brokers increase the spread, sometimes to quite tangible values. Such spread will simply "eat up" your profit and increase your loss. Price slippage and requotes are not uncommon.
The experts at ForTrader stick to the classic views on trading and do not recommend trading during a thin market. However, if you do decide to trade, we hope that the above tips will help you make a profit and insure against unnecessary losses, making your New Year's celebrations bright and cheerful.
I never thought there were so many subtleties in trading a thin market.
The thin market is totally unpredictable. I believe that during the holidays one should celebrate and rest. If purses can still be restored, nerve cells are not.
Yes, it's better to rest for the holidays. Then with a clear head it will be easier to trade.
Thanks for the good advice! Then we should abstain!
I agree, I read and was scared, so many tricks in a thin market that begs the conclusion, it is not worth the risk of the holidays, the purse will be safer.
January and February are two of the most "deaf" months in trade, everyone is quiet.
I agree, but in these two months you can also make money. Because of low market activity I work quietly at this time and mostly consider this period a vacation, before a busy year.
On the timeframe M5 it is better not to trade at all, because on this time frame it is extremely difficult to keep track of the indicators, even in a thin market. It is better to use timeframes from M15 onwards. On Friday and on the eve of public holidays it is better to refuse from the transactions at the market, regardless of the situation at the market, because in the case of a drawdown the losses will be much greater.
It's not worth trying to get a few pennies before the news comes out, when you can make a nice score. There's no need to take any risks.
In the thin market you can make good profits if you have good experience. But beginner traders should better avoid trading, otherwise professionals will pocket their deposits.
In the thin market, whoever has more money will make a profit. This is a purely speculative market and practically without investors. And in a purely speculative market - a small private citizen is food for "sharks" giants.
It seems to me that when trading in a thin market, you run more risk of losing capital with little chance of earning anything at all. That's why it's better to refuse from such trading
Let's take advantage of the advice and take our chances in the thin market.
Yes, very useful article, a lot to take note of. Interesting and dangerous thing this thin market. Still, it is better not to mess with it without experience.
I am just beginning to learn the basics of trading on this exchange, so it was important for me to learn about the thin market. I think I'd better refrain from trading for now.