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Trading Education Posted by Team Topstep December 16, 2021

5 Keys to Holiday Trading

Holiday Trading

As the year ends, we begin to reflect on the current year and target and ferment our goals and plans for the upcoming year. So if you’re a trader who likes to trade the final two weeks of the year, here are 5 keys to holiday trading for you.

Of course, for many of us, there is the Christmas holiday. But, whether we observe it or not, the seasonal aspect still surrounds many traders. 

Holiday trading can be tricky, exhausting, and sometimes feel like a waste of time, especially in the immediate days preceding and following the holiday. 

I’ve seen traders do some ridiculous things at the worst time of year. It’s sometimes due to emotional fatigue at the year’s close or boredom. But, for some, it’s because of the challenges to meet the income quota that traders start to take unhealthy risks. 

Whatever your status, I can tell you; the holidays are no time to spoil by losing a significant amount of your capital. It’s just not worth it. This is why I stop trading during the final ten sessions of the year. 

However, if you are going to trade right until the markets close for Christmas, and then again once they open until they break for New Year’s Day, then below are some items to consider incorporating into your trading during this season.

As usual, we are all unique personalities and traders with varied styles. Therefore, you will need to adjust these principles to suit your trading persona. 

5 Keys to Holiday Trading

Get Your Expectations in Line

The initial best piece of advice is to align your expectations with reality. Yes, there will be opportunities around the holidays. However, often, to capture these, you must be vigilant through a quiet market to capture the lesser moments when momentum picks up. 

My suggestion is to temper your expectations accordingly. For example, if you have a monthly quota, it may be prudent to scale that quota by 50% during the final two weeks of the year. Of course, there is nothing inherently prohibiting you from exceeding that goal, but just a good mental check-up to acknowledge your seasonal reality. 

The most prominent concern I have is when I’ve observed traders who wish to hit a home run in the final week(s) of the year. Usually, this is the result of an aggressive maneuver following disappointments. Whereas we all should hope to end the year firmly, still, consistency is what creates a long-term career. 

Seasonal Patterns Give Indication

Seasonality is tricky, and I’ll be the first to admit it. Typically, markets are slower in December, especially close to Christmas. There’s an old adage for the stock market to “never short a dull market” because typically, the lean gives to more stock buyers than sellers when all things are equal. 

Historically, much of the latter portion of December is considered “risk-on,” meaning that risk assets like equity index futures will tend to rise while markets like U.S. Treasury futures will tend to fall in demand. The key isn’t to take this as a blind guide, but it can help confirm the direction(s) you wish to take. It will be up to you to look at your market and determine the seasonal effectiveness.  

Volatility Doesn’t Always Disappear

Okay, just because the market slows down doesn’t mean that volatility and momentum disappear entirely. Some large moves frequently come in the final weeks of the year, but sometimes they only last for an hour in the day. So, if you are looking for good momentum, you should keep your eyes peeled to the market, even when it is slow. However, that can also be exhausting. It might be helpful to set alerts instead while enjoying some less focused and more refreshing time.

Prepare for the Best and Worse

After the last suggestion, the key is to prepare yourself. If you need volatility, be alert to when it’s happening because it’s often less common but still potent during the holiday season. Furthermore, it is pertinent to prepare for an inevitable occurrence: a low-volume, choppy market with tighter ranges. If your system cannot adapt to this, then it’s better to remain on the sidelines. Choppy markets can lead to a “death of a thousand cuts” type of detriment for traders unprepared to make the most of limited opportunities. 

Be Willing to Hold Positions Longer

Most of the audience are day traders. However, it may be necessary to hold positions longer to earn your pay during the holiday weeks. For example, if you typically hold for five minutes, you may have to hold for half an hour, and if you usually hold for an hour, you may have to hold all day and possibly overnight to hit your standard target. Therefore, the most crucial aspect is to control your risk, and in that case, you might hold a position as long as you wish. 

See You Next Year!

These are just five things to consider in the weeks to come. Perhaps you have some nuggets of wisdom you’ve accumulated during holiday trading. If so, please keep the conversation going. Whoever you are, my hopes are for a prosperous close to 2021, and whatever you observance or not, still, I hope for a peaceful segue into the new year. Until next time, trade well!