It is a fact that liquidity in the markets has been decreasing for some time now. This is not just a feature of the holiday period, but certainly is more noticeable between mid July to around the third week in August. Thinning liquidity is in part due to the over mature long term cycle we are finding ourselves in.
Banks cannot trade as they used to due to tightening of regulations, low interest rates having taken their toll on profits, and investors are nervous of the future. The closure of the CME trading floor has added to the liquidity problem. Floor trading has not accounted for much of trading in recent years, however, it has been able to provide liquidity when there where gaps in electronic trading.
Many of the old contracts have disappeared, making way for retail mini contracts.
Yet, the retail trade accounts only for a very small percentage of overall trading.
While decreasing liquidity is a trend, it certainly is highlighted right now, as we have just entered the main holiday period presenting traders with its very own set of challenges:
When liquidity is thin indicators are less reliable.
Erratic, sudden swings with no follow through are more common right now. You see more gaps than usual and this pushes indicators into oversold, overbought territory, rendering them often pretty useless.
When markets lack harmony the trading mind reacts, bringing out old suppressed fears and insecurities. Traders think they need to know at any given time where the market is going. This idea makes for many a poor trading decision.
Admitting that one doesn’t know what the market is doing is not a weakness, it’s a strength
Traders are trained to take a trading signal, come what may. It is part of the discipline of a trader, so the old lore goes, and is supposed to be one of the hall marks of good trading.
Well, I beg to differ: Your job is to know yourself first and foremost and act on the information your mind, body matrix is giving you. The traders I work with come to me usually as well trained trading machines with little or no sense of their inner working: They know how to function by the book of rules. This often means ignoring their emotions and feelings, operating from a purely mechanical perspective. Sometimes that works, but more often than not this approach causes many a painful experience.
When you are out of touch with your feelings you are out of touch with (trading) reality
It is your feelings, your innate abilities that create the connection between you and the markets.
Hence it is vital to learn techniques that hone your ability to listen to that inner voice. The inner voice, your intuition is not to be confused with your conditioning. Learning to distinguish between the two is the real challenge, as most traders mistake their conditioning for their intuition.
This leads to abolishing your trading plan for all the wrong reasons whenever the pressure mounts.
If you can notice early on that you are not in harmony with the markets you have a huge trading edge. It is no crime not to know where the market is going.
The crime is trading when you are uncertain. Trading when you feel uncertain is akin to gambling, my friends.
If you feel that the present volatility is too much for you, stay out, or trade a different market.
The liquidity issues the market is facing are here to stay.
They are made more pronounced during the holiday period, but they are also part of a bigger cycle.
You don’t win brownie points for taking as many trades as you can. You win brownie points for identifying and taking the trades with the best profit opportunities.
Note, I say not the biggest profit opportunities, but “the best”.
There is a big difference: I can observe a potential big profit opportunity, but the trade may be high risk. You need to be able to spot those trades which are most likely to put money into your trading account. These trades are the ones which will yield a sure number of points or pips without high risk.
Again, when you learn to intuit your trades, developing your innate abilities, you also develop your ability to evaluate risk.
Always remember this: you see the markets as you are and not how they are.
Your internal filter system will sort the information on the screen and interpret it for you. If you are given to fear, hesitation, self doubt and similar emotions you are still operating from your lower self survival mechanisms. Study the laws of the universe, study what drives reality manifestation. This information will give you a sense of your true self and move you into the realms of spiritual inquiry, which gives you access to the higher self parts of you.
Scientific studies show that people who are aware of their spiritual essence are happier and more successful.
When you learn to trade from the higher self perspectives, the old fears, doubts and uncertainties gradually give way to clarity of mind and purpose. Your trading as well as your entire well being will benefit as you move from survival into self actualization.
