Dangers of Trading Stocks in August

Dangers of
Trading Stocks
in August
By www.ProfitableTradingTips.com

http://profitabletradingtips.com/profitable-trading-tips/dangers-of-trading-stocks-in-august
The old saying is to sell in May and go
away.

The rationale is that many traders do
this and the market is often flat in the
summer or low volume begets high
volatility which can be dangerous.

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What are the other dangers of trading
stocks in August?

Investor Place writes
about Microsoft but issues a warning
about trading in August.

“In a special note to my clients
yesterday, I once more warned that
August is a dangerous month for
traders, as the usually choppy trading
leads to many fake-out moves and thus
losses for traders.

At the same time, August also has a
tendency to see unexpected and often
short-lived waves of volatility (such as
we witnessed last week) that catch
many traders flat-footed.

All in all, my best advice for august is
for market participants to take a step
back, become more selective and
reduce position size.

The September - November period
often times is a much superior time for
active market participants, and it’s only
a few weeks away.

Remain patient and don’t force trades
that aren’t there.”

Not forcing your trades is perhaps the
best advice about the dangers of
trading in August when there is often
not enough volume to engage in
accurate technical analysis.

“Technical analysis says that the future
direction of stock prices can be
predicted solely by studying past
market data for price and volume
indicators.

Technical analysis says that all relevant
market data is reflected by prices so
that fundamental analysis is
unnecessary.

Technical analysis data is built into
trading programs allowing the day
trader to predict pending market moves
with a fair degree of accuracy.”

But for this to work you need enough
trading volume to make statistically
based trading programs accurate.

Because of low volume trading stocks
in August and basing those trades on
technical analysis can be dangerous.

How about Fundamentals in
the Summer?

If you can’t trust technical analysis, how
about fundamental analysis?

This is a good path to follow for long
term investors and may be useful for
swing traders who are following stocks
that are otherwise ignored by Wall
Street analysts.

The famous Oracle of Omaha, Warren
Buffett, started out by purchasing
stocks that he described as one last
puff of the cigar.

They were companies that could be
reorganized, restructured and made
profitable however briefly before he
sold them.

Traders who pay attention to less-
watched stocks can find bargains to
buy and can short stocks that are ready
to fall.

This is not day trading but a longer
version of swing trading.

It can be profitable but requires a
different mindset than technical
analysis.

And this sort of trading can be
profitable in the summer when trading
volume is low and volatility is high.

But you need to pay attention and get
out at the ever so brief peak when your
unwatched stock suddenly becomes
popular and before investors realize
why it is not a long term bargain.

Dangers of Trading Stocks in August

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Dangers of Trading Stocks in August