Is it risky to trade Forex during holiday season?

Photo by Mathieu CHIRICO on Unsplash

Traders choose automated trading to enable them to trade logically as per rules.  Phibase team takes every possible step to keep emotion, fear,  greed and gut feeling out of its trading strategies.  We try our best to base all our trading decisions, logic and rules on statistical technical facts. 

Holiday Trading : 

(between the start of Christmas week to end of first week of new year)

There is no statistical significance of Phibase EA trades made during the holiday season. Historically,  the performance metrics (wins/losses) are very similar to regular trading days. No significant drawdowns are associated with the holiday sessions over the 6 years live trading and over 12 years of backtest period.

The Xmas Holiday period is also usually associated with no major economic data or market moving economic decisions. The price usually is ranged or make move within contained ranges but on low liquidity mostly reflecting year end flows and portfolio re-balancing by major players. 

What are risk events and how does Phibase EAs trade them?

High Risk Data and Events :

Phibase EAs have been able to handle high risk events exceptionally well. RayBOT, CabEX and iProfit have all made good gains during major events like elections and regular high impact data releases like NFP. INDEX is a much more stronger strategy and is capable of gaining well from such events. 

Flash Crash(s)/Algos/System Failures : The End of Day (EOD) hour is usually during the period when only Australian/New Zealand markets are open. This is the period when liquidity is at lowest. Flash crash could occur and usually reason is attributed to the crash on hindsight only. The 3rd Jan 2019 crash happened during the holiday trading period. But not all crashes happen during holiday sessions. 

The previous crash was on GBPJPY was seen in Friday 7th October 2016 during the 3rd hour after EOD on a normal trading day. The 900 pip gap within a few ticks was one of the largest moves and was been attributed to being algo driven (as per some sources, it was a  system failure).

Black Swan Events : Forex trading is also exposed to black swan events like the Swiss 15 Jan 2015 event which had triggered 1000 pip drops EURCHF/USDCHF within a single tick.

Gap Opens : Weekend news/risks could make markets open with gaps – If any open trade is on the wrong side the SL will not be honored. We have seen gaps of about 250 pips in live trading – CabEX was affected once but the loss was made up within the next few trading days.

Trading the right risk level:

More than the risk of trading during holidays, traders need to factor is the possibility of flash crash or black swan events. These are rare events and usually seen once in two years – they can occur randomly during any day of the year. They are not good for traders, EAs or even the financial institutions or brokers. Many brokers filed bankruptcy after the Swiss black swan event in 2015 – Including some very large brokers like Alpari and FXCM (saved due to take over by an investor).

While the chances of having an open trade on the crashing pair may be rare, it is a possibility.

Phibase portfolio does not trade low volume minors or exotics.

iProfit trades EURJPY but never leaves any open trade of any pair over the weekend.  This is because  risk:reward of the system is 1:1 and recovery from any negative gap opens would be a long process.

During the 3rd Jan 2019 Asian Market Crash: 

INDEX GBPJPY trade was open with floating gain of +200 pips prior to the current crash. The trade had been open since 31st Dec. Flash crashes are generally seen in the same direction of the trend (may not always be the case – system failures can happen in any direction). Phibase started trading Yen pairs only after INDEX strategy was developed – this is largely because the strategy has a lot more market information to factor into the trade. In most cases the overall trend direction is maintained. INDEX trades are likely to benefit from flash crashes. Among all strategies we have researched and developed, INDEX is relatively safest for trading Yen pairs – the risks associated are well compensated by the rewards offered by trading this pair.

Further, as you may have seen in our Phibase technical trade recommendation a drop to 134 level was very much expected as it was the completion leg of the Crab Harmonic pattern. We are of the opinion that many large positions had stops placed below 133.8 level and once they got triggered, the slip to 131 was imminent. 

In case INDEX was holding a LONG prior to the current crash, the SL of 100 pips would have been triggered about 15 minutes prior to the 600 pip drop.

In the rare event that the Phibase portfolio has a trade in wrong direction, the loss would be as per the risk level used and well within max drawdown expected.

Assuming a worst case 500 pip drop with stoploss not being honored would lose about 10% of the equity (at default risk 2%). The equity loss would be 15% at risk 3%.  – this is a risk that should be factored into trading.

Many EAs/traders set risk based on most recent good performance without considering the max drawdown the system has seen in past – when trading with such risk, accounts are usually blown out. Grids/Martingales almost always blow out accounts during such events.

We always recommend risk keeping in mind the worst-case DD – This makes our gains look smaller and lagging other EAs on performance leader boards.  Our goal is to perform consistently over long term and give the strategies a chance to prove their potential.

Good luck always helps – We wish you good luck towards achieving your trading goals.

Phibase Team
https://forexsignalport.com

If you are new to Forex trading, you can find more information on Forex trading, brokers and strategy analysis methods at Forex InfoBook, ForexGermany and BabyPips.