How to Prepare for The Summer Doldrums

The summer doldrums on Wall Street are almost here once again. As an investor it is wise to prepare for this period, which is quite different than the rest of the year. How can you be ready for the stock market's summer doldrums?

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Patience
• Risk tolerance

1. The summer doldrums is the period between approximately Memorial Day and Labor Day. Trading volume on the major averages falls significantly during this time and often the market gets in a sideways trading pattern over the long run, but has some knee jerk reaction trades in the short-term.

2. 
   Get out those travel books

   What causes the summer doldrums on Wall Street? It really is quite simple, people taking a vacation! Wall Street traders and investors are just like everyone else, they want to take a vacation and get away from the stresses of life for a week or two at some point. Throughout the summer period many of the major investors, including mutual funds, do much less buying and selling of stocks.

3. How will the market trade differently during this period? In general the summer doldrums lead to a stagnant type of trading pattern over the long run, but there can be some rather large day to day swings. News that would normally not move the market very much has the ability to move the market much quicker since volume is so light during this period.

4. It is important to understand that the summer doldrums decrease the volume on the market, but the market is still extremely liquid and if you wish you will be able to trade in and out of stocks with little trouble. The only problem you may find is there may be less opportunities to buy low and sell high for a quick trade.

5. 

   Preparing for the summer doldrums in the stock market means understanding that there will be lighter volume, more listless and stagnant trading patterns, but the possibility of quick knee jerk reactions is also higher than normal. If you are going to own stocks during the summer doldrums you'll want to understand this and be tolerant of some extra risk.

Tips & Warnings

• Ready your portfolio for the summer doldrums and realize that the market trades in a unique way for these few months.
• Don't be too quick to read into major gains or losses over a day or two period during this time. Light volume moves usually are less convincing.

[nanamusicgirl]

on 10/14/2009 This is very interesting. Great topic! Take time and back off and just study the market! 5stars!!!!!
Recommended!!

[xrayness]

on 5/28/2009 Very interesting article that I enjoyed reading. This type of topic makes eHow a legitimate website on the internet.