Light Volume Markets Can Be Tricky
Nicholas Santiago | Aug 29, 2012 01:07AM ET
As you know, the trading volume in the month of August 2012 has been extremely light. In fact, this year we have seen some of the lightest volume in the past 10 years. This trading period is also known as the summer doldrums. During this time, many inexperienced traders and investors try to force trades in light volume markets. That strategy is often the kiss of death.
Light volume markets do not favor the individual investor or trader. The reason is because it is simply too easy for the institutional traders to bully the market in their favor. You see, the institutional trader has unlimited funds or deep pockets and if they are wrong they will simply work the position by averaging in and forcing the position into profitability. As an individual trader that cannot be done and the institutional traders know that.
Many times I hear traders talking about trading and investing like Warren Buffett. While this theory sells books and sounds good on paper it is simply not practical. How many traders could have bought Goldman Sachs Group Inc (NYSE:FCX ). While these names may not be sexy and ultra volatile they have plenty of volume and can be easily read on the charts. Remember, the light volume markets are very tricky.
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