Trading the holidays – how to avoid Christmas regrets

The festive season may be a time for giving … but don’t let that be you handing back profits to the markets.

Here’s my top-seven countdown for staying safe over while trading the holidays, when others are losing their heads and gorging on mince pies and illiquid markets …

Number #7

Lack of news and the general distraction of the population by present-giving and turkey-eating means that there’s usually very little to drive prices over Christmas. As a result, prices tend to develop tight trading ranges, so the kinds of moves you expect, may just not be there.

Of course, if an unexpected piece of news does come out, then its effects can be exaggerated …

Number #6

Over the Christmas period, markets will be closed on boxing day, some will close early on Christmas eve, some will be closed on the 27^th, some will close early on Friday 30^th, and remain closed on Monday 2^nd January …

All in all, it’s a bit of a jumble over the two long weekends of Christmas and New Year.

When markets are closed for longer than-usual sessions, they can open up again with a jolt as prices find their levels. If you have trades left open over the festive period, you’re leaving yourself open to this increased risk.

Number #5

And, of course, many professional traders will have closed up shop to spend Christmas in a sunny climate or on the ski slopes. With these large portfolios out of the game, there’s less buying and selling going on in the markets.

Buying and selling is the blood pumping round the markets – without it, market moves become more exaggerated, as buyers struggle to find sellers, and sellers struggle to find buyers.

Even over holidays, major indices and forex markets will always be able to find buyers and sellers, but any drop in liquidity means that big orders will have a larger than usual impact on prices. So, even if the holiday trading ranges are quite tight, prices can be pretty jumpy within those ranges.

Number #4

The effect of these thin market volumes, plus extended periods when markets are closed is that markets just won’t be behaving in the ways we expect.

Of course, there is no ‘normal’ in the markets, but your carefully devised trading rules are unlikely to have been developed with Christmas markets in mind. Therefore, the rules we follow for our trading just won’t be as reliable as usual.

Number #3

If you are trading, then by limiting your time in the market, you will be reducing your exposure to the risks above.

Number #2

When markets are volatile, investors’ prefrontal cortices come under pressure – this means that we make poorer decisions (all that sherry doesn’t help with the decision-making either).

Number #1

My number one tip for trading over the Christmas period is a little trick I copied from those big City traders …

It involves turning off your screens and taking a well-earned break.

My trading fund and my time are precious, and I don’t want to waste either on poor, unreliable market conditions. Especially at a time of year when there’s so much better to be doing!

And, if you really can’t go cold-turkey from your trading over the holidays … spend your time wisely by running through your trading records and checking that you’re in top performance ready to start again in January.

My long-term positions, will continue to run over the Christmas period, but today is the final day I’ll be opening any Heikin Ashi Mountain trades, winding down next week, and not coming back to live trading until 3 January. Diff Code trading will also cease until the second week of January, and I won’t be doing any day trading with Bread & Butter.

The one thing that can carry on unhindered over the holidays (except for the three days over Christmas when there’s no racing) is Rainbow’s End – if you’re not already picking up an extra income with this little trick, it could be the perfect Christmas gift to yourself (and it might just pay for all the Christmas shopping too!)

Related posts:

What’s the difference between trading and Christmas shopping? Where’s the Santa rally?