The Forex Chronicles

Why Christmas Is More Profitable For Share Traders Than Forex Traders

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Christmas Trading

We are coming up to one of the most exciting times of the year. A time when we can all take a break from work and spend some quality time with our loved ones.

None of us really want to be thinking about the markets over Christmas, but in this article I want to explain why this can be a very profitable time for stock market traders and investors in particular, and not such a good time for currency traders.

Woman Trading On Computer Over Christmas

Santa Rally

If you have been trading or investing in stocks for a number of years, you will be probably be aware of what is now commonly referred to as the ‘Santa rally’.

This basically refers to the fact that historically the major stock markets tend to rise over Christmas and New Year. Most of the big rises tend to occur in the middle of December, but prices will often continue to drift higher over Christmas and continue into the New Year.

It is not known exactly why this occurs. It could simply be related to the feel-good factor that everyone has at this time of the year, but it could also be related to bonuses because bankers and traders want to push prices up before the end of the year in order to balance their books and report bigger gains for the year.

Whatever the reasons, it is often a good idea to invest in undervalued stocks at the end of November or the start of December, and hold on to them until after the New Year.

Please note that the Santa rally doesn’t occur every single year. There are years when there is no real rally at this time of the year. However in general this is a profitable time for stock market traders.

Low Volatility Forex Markets

Although Christmas can be a very profitable period of the year for share traders, the opposite is true for forex traders.

That’s because volumes start to drop off quite sharply about a week before Christmas and continue to stay low for the next few weeks until after the New Year.

Therefore because of the reduced volatility, there is a lot of sideways price action and it can be a lot harder to predict which way the markets are going to go. Furthermore, even if you are right about a position, the resulting price moves are often quite small.

Final Thoughts

If you are a forex trader, I would always suggest that you take a complete break from forex trading over Christmas and New Year in order to preserve your capital.

However if you are a share trader, the Christmas and New Year holiday seasons can be very profitable and there are opportunities to make money from the annual Santa rally, but you still need to exercise caution because there are some years when we don’t see a rally over Christmas.

With all the uncertainty surrounding Brexit and trade wars between the US and China, 2018 may well be one of those years.

Why You Should Avoid Trading Over Christmas And The New Year

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At this time of the year many traders tend to take an extended break from forex trading, and the reason why is because it is very hard to generate profits over the Christmas and New Year holiday season.

I myself have been trading the currency markets for a number of years now, and always make sure that I stop trading at least a week before Christmas because I know that it always becomes harder to make money during this time.

I will usually resume trading well into the New Year when all of the traders are back at their desks and everything is back to normal.

The main reason why I and many other forex traders take a break is because the markets are a lot quieter over the Christmas and New Year holiday period.

Volumes tend to drop off quite considerably and price moves amongst the major currency pairs are often small and contained on a daily basis. You can sit staring at your screens for hours on end, but the price will barely move a lot of the time.

There are also be other occasions when you get large price swings that are almost impossible to foresee because they are influenced by the lighter trading volumes.

Generally, though, you will find that the markets are really quiet most of the time. If you need evidence of this, you only need to record the daily price movements of all the major currency pairs during this time, or look at the Average True Range indicator over the course of the holiday period, when you should notice that they all become a lot less volatile.

If you do insist on trading over the holiday season, you should maybe consider reducing your stakes or reducing your price targets due to the smaller price moves.

Alternatively if you are more of a long-term trader and are not really concerned about the small intraday price moves, then you may want to consider trading as normal.

However I personally would suggest that you take a break altogether and enjoy the holiday season without worrying about the markets because, in general, volumes and volatility are greatly reduced and the price moves are often a lot more unpredictable.

You have the rest of the year to make decent returns from the forex markets because they will always be available for you to trade. So why risk losing money and stressing yourself out during what should be one of the most enjoyable times of the year?

Why This Is A Perfect Time To Start Trading Forex

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As you may be aware, stock markets all over the world have slumped this week due to China’s economic woes and the continuing decline in commodity prices.

Commenting on the week’s events, this article from Bloomberg reports that China’s Shanghai Composite Index has fallen by more than 10% this week, and is very close to wiping out all of the gains that have occurred as a result of the government’s intervention last month.

It is a similar story in Europe and other areas of the world, and the United States didn’t escape unscathed either because the Dow Jones closed more than 500 points lower on Friday.

Indeed in some cases, stocks have recorded their worst losses since 2011, which shows the depth of the current stock market slump.

So if you hold stocks in your investment portfolio, it is almost certainly a lot lower now than it was at the start of the week, and could continue to fall in value if you plan on holding them for the foreseeable future.

That’s why I think this is a great time to consider trading forex if you haven’t already done so. The great thing about forex trading is that it doesn’t matter if currencies rise or fall because you can make money from long and short positions.

Furthermore you don’t have to endure sleepless nights wondering what’s going to happen to the value of your stocks because it is possible to enter and exit positions on the same day if you so wish.

Another benefit of forex trading is that you don’t necessarily have to risk lots of money in order to make some decent returns. If you make use of leverage, for example, you can turn a relatively small amount of capital into quite a tidy sum if you are successful.

I myself started off this way many years ago and managed to build up a decent pot using a few basic trading strategies.

Of course I have to put in a disclaimer and point out that it is not easy to make money from currency trading. It is estimated that up to 95% of people end up losing money in the long run.

However if you are fed up of seeing the value of your stocks going down and don’t think that the world’s economies are going to improve any time soon, you might want to take control of the situation and consider forex trading as an alternative way to make some money from the financial markets.

If you can contain your losses and ensure that your winning trades more than compensate for the occasional losing trades, you should find that it is not that difficult to come up with a winning strategy that will generate decent returns in the long run.