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.
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.
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