What is the Thin Market?

Thin Market

The thin market refers to any type of market where the current trading level is abnormally Thin. When there is a Thin market situation, the market will experience greater differences between the buying and selling prices that occur. Since there is almost no trading, it is believed that Thin liquidity.

A thin market is a pair of characteristics of any type of narrow market phenomenon where the current trading level is abnormally low. Both types of market conditions show Thin trading volume and are considered temporary. 

However, narrow markets usually produce large fluctuations in the price of the asset being traded, while thin markets tend to have a certain degree of volatility stagnant. However, it is not uncommon for some investors to use these two terms interchangeably. 

Experience This Phenomenon

Any type of market will experience this phenomenon. Disasters in economic conditions related to political or natural events can easily slow a prosperous market to the point that almost no transactions take place. This can happen in stocks, bonds, futures, and even currency transactions. No market can avoid becoming a weak market. Fortunately, a weak market usually shows signs of recovery in a relatively short period of time. Once the incentives for this activity have subsided.

When this happens, the thin market will quickly become a liquid market, which allows trading The participants are very happy that the market will reach its peak and then return to a stable but profitable state. Many investors choose to hold their current portfolio in a down market.

Temporary State Of Thin liquidity 

Their idea is to wait for a temporary state of low liquidity and stay calm. When economic indicators point to conditions conducive to market recovery, investors can start to consider releasing some assets for trading, or the stocks issued at low prices in the market start to rise to Start the acquisition before the price.

Thin market: where is thin, there is torn?

If we turn to the definition, then a thin market is a state when prices, which previously developed a strong trend, stop moving and begin to consolidate. Trading at this time calms down, and the number of active participants is sharply reduced.

It is worth distinguishing a thin market from a sluggish one, since a sluggish market mainly determines a flat, or, in other words, a sideways trend, and the number of participants may not decrease significantly. A thin market, or volatility depletion, is necessarily characterized by fewer participants. And if a sideways movement can occur quite often, without a time reference, then for a thin market, patterns in time can be identified.

Usually, the market becomes thin during the close of the European session and in the second half of the Asian session, before the release of important economic news, on bank weekends, holidays (especially Christmas holidays), in the summer period (August). At this time, the basic principle of supply and demand is almost not working on the market, and there is not enough liquidity, so there is no need to rely on the usual market constants.

So, in a thin market, a deal with a more or less good volume overcomes many more points than it would have overcome in normal times, so a trader who decides to trade in a thin market should be especially careful.

In general, experienced traders recommend not trading on a thin market at all, but rather wait until it becomes more active. Why? Because such a market is most unpredictable, and if you apply the saying “where it is thin, there it is torn” to trading in a thin market, then the impulse threatens just the trader’s deposit.

Thin Market: Tips for the Brave at Heart

But if you nevertheless decide to try yourself in trading on the thin market, in addition to courage, you will need something else. Since the usual laws of market physics do not work well or do not work at all in a thin market, such trading requires a special approach. Below are 4 tips on how not to lose, but make money in such specific conditions.

  1. Don’t go wrong with a trading strategy.
    Positioners in the thin market actually have nothing to do – it will take a very long time to wait for the optimal entry into a deal. Therefore, leave positional and intraday trading for better times, and practice scalping in a thin market. Moreover, the optimal timeframe for scalping will be five minutes, the maximum – an hour.
  2. Don’t give the toad a chance.
    Greed is a bad advisor in any kind of trading, but in a thin market, it is generally unacceptable. Remember that a thin market is a passive market, so expecting more than 15-30 points from the price movement is already greed. Such expectations are stupid and unjustified, the price will not jump by 100 points in a thin market.
  3. Don’t be smart with your feet.
    There is an opinion that it is better to set the stop loss further away so that stop hunters cannot reach it. The risk of getting caught by such hunters is rather vague, but the margin call is quite tangible. Therefore, do not experiment with stop losses, especially in a thin market. A price spike on it can occur at any moment, and in conditions of depletion of volatility, the price on such a spike can more easily overcome the seemingly iron support and resistance levels (there are few players, there is almost no one to resist).
  4. Be critical of indicators.
    The problem with indicators, price patterns, and volume signals is that in a thin market these same volumes are practically absent, respectively, figures and technical analysis signals give a lot of false positives, and it is not too far-sighted to rely on them if your goal is not to drain your deposit.

And, of course, important in such trading will be to maintain emotional balance, not to trade in a state of fatigue or nervous tension, and not to overdo it.

It will be much easier to control your emotions and actions even in such a difficult situation as a thin market if you first undergo high-quality training in trading with practice under the guidance of an experienced successful trader. This can be done at the Alexander Purnov School of Trading.

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And Read About The CFD Trading Strategies For Beginners.

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