skip to main content
Trading Education Posted by Team Topstep September 20, 2022

Who’s Ready for the Strong Finish?

Hour Glass

October is right around the corner, and depending on where you are in the world, this can imply different things. In the Northern Hemisphere, it means that we have now moved into Autumn. For those in the United States, earnings season is about to start in the U.S. stock market. Meanwhile, the new school year is underway, and Halloween and Thanksgiving are drawing nearer. 

For many readers, regardless of location, December involves a special holiday season to look forward to. Finally, for everyone on the Western calendar, this means that we’ve entered into the final quarter of 2022 with just three months (October, November, and December) remaining in the year. 

A Strong Finish Starts Now

Today, I want to discuss finishing strong in the calendar year. I have reflected on various personal trading experiences over the years. I can remember years when I was performing well, but in the final portion of the year, my account went from positive to negative. 

Other times I remember being down on the year and suffering from bad to worse in the final weeks. Alternatively, I can not forget turning a losing account into a winner in the year’s last quarter; there have even been some years that I turned a fine year into a significant year of winnings in the final quarter. 

No matter who we are and which scenario we might be in, I’m confident we want to finish strong. I’ve noticed over the years in NASCAR racing that those who win the pole to start the race in the front of the pack often don’t win the race. So, of course, a good start is definitely helpful, but it’s not about where you start but how you run the duration of the race. 

Or take baseball, for example. Sometimes a baseball team surges at the end of a season, and the momentum carries the team from having a mediocre season and thrusts it into the playoffs and even into the World Series. Why? Because momentum at the close is significant! It can carry you through. Just look at the Atlanta Braves surging past the New York Mets, who have been on top of the NL East all season. This behavior is also observable in football (think Cincinnati Bengals last year), basketball, and other sports. 

Urgency, Fear, and Ambition

My readers know that my specialty involves a more psychological outlook toward trading. So before I address some practical steps, I want to consider mental and emotional aspects relevant to end-of-the-year trading. 

The Urgency / Panic-Driven Trade

Some of us experience this at the end of a trading day, week, or year. It feels as if time is running out, and we have not met our quota. A certain panic begins to set in that somehow defuses our normal thinking patterns and leaves us believing we must take a big shot to make bank before the close. 

You can be aware that this may be about to happen if you feel any sense of urgency whatsoever. The problem with this type of motivation is that it often circumvents our risk management and, therefore, leaves us with negative experiences. The key is to set reasonable goals for the year’s end and avoid thinking we have to be a market hero. If you start feeling a sense of urgency, you may need to step away or reflect on your experiences until you’ve conquered this feeling. 

The Fear Trade 

Fear is closely associated with the urgency and panic previously mentioned. In addition, there is the sense of the fear of missing out, or sometimes even the fear of being in a trade. Both of these scenarios likely extend from a lack of success. Maybe you are advancing toward the year’s close and are afraid of missing out on a big rally. Or perhaps you are worried you will make a bad year worse. 

If either is the case, then I’d suggest being passive until you can understand and regulate your fear. Aside from deep reflection and circling why you are afraid and the psychological factors that enable your anxiety, I believe that fear, in a more practical way, comes from the lack of a credible, time-tested plan. Therefore, if you are afraid, you may be able to compensate with great confidence derived from a serious, well-considered, backtested plan that considers the risk to reward

The Ambitious Trade

Okay, from the onset, ambition is necessary. However, sometimes ambition leads one down the road of taking an unconsidered risk. Remember, everything is about proper balance and regulation. Ambition can be blinding. Therefore, if you are ambitious, please retain that quality, but balance it with good planning, as referenced above. Otherwise, unregulated ambition will have you go “all in” trying to hit an end-of-the-year jackpot. This is not the answer either. 

I’m sure there are other ways that the mental and emotional process disrupts end-of-the-year trading. If you can think of any more, feel free to mention them in our social communities. However, for now, I’ll move on to address some simple but helpful methods you can integrate into your trading to give yourself a better chance of finishing the year strong. 

7 Methods To Finish The Year Strong

Go With What Works

I often advocate keeping a journal, spreadsheet, or any device that permits you to chronicle your emotional and mental responses, as well as your trading track record. Then, whether you are up or down for the year, you can still look back and reflect on what has been most effective. 

Whether it be specific markets, timeframes, strategies, methods, or times of day, there is somewhere you tend to shine best. So I’d say if you want to finish the year strong, zone into what you do best and make that an area of concentration. If you want to improve your growing edges, that’s fine, but perhaps that is better as a goal for a new year rather than in the final quarter of this year. 

Use a Running Stop

You are probably familiar with running stops as applied to specific trades. However, you can do this with your profit balance for the entire year. For simplicity’s sake, let’s say that you are up $10,000 on the year. Naturally, you want to close the year strong, and the last thing you want to do is finish out weak. Therefore, you might consider a trailing stop of your profit. 

For example, let’s set your trailing profit stop at $1,000. In this example, if your profit balance dips from $10,000 to $9,000, you quit trading for the year. Yes, this is a passive approach. However, it generates a limit to losses while securing the winnings for the year. I can tell you from first-hand experience that there’s nothing more heartbreaking than giving up significant profit at the close of the year. 

Take Calculated Risks

Maybe you want to take a shot and aim for a home run. There’s nothing wrong with that when done correctly. However, if you’ve had a great year, then you should be able to reserve a responsible portion of your winnings and decide you will risk that by taking a big end-of-the-year shot. 

When it works, it really is the icing on the cake, so to speak. However, you must be able to deal with disappointment if it doesn’t work. The key is this; if you are going to be more than marginally disappointed by failing to land that knockout punch, then maybe consider avoiding the home run swing

Think Momentum

Remember what I said about sports and momentum earlier, that good momentum to finish the season often carries over into the playoffs? Well, the biggest gift you can grant yourself in the year’s final quarter is to infuse momentum into your trading going into the new year. 

This advice is designed specifically with the breakeven or unsuccessful trader in mind. However, suppose you can pull yourself together and generate some momentum into the end of the year, even if this means very modest to moderate success. In that case, you will put yourself in a great position to begin the new year strong. In short, momentum often carries!

Beware of Seasonal Tendencies

Seasonal tendencies play a practical role in end-of-the-year trading. Seasonal patterns in every market are important, albeit some more than others. I believe that the end-of-the-year cycles are essential and worth paying attention to. 

There is a certain way in which institutional fund managers secure and rebalance at the end of a year. When a historical pattern begins to develop, usually, the momentum is significant enough to be an end-of-the-year difference maker. If you are trading any futures market, you want to ride the cyclical wave when possible rather than resisting it. 

Don’t Forget the Fundamentals

Let’s face it this year has been interesting and engaging, especially in the futures markets. But, as we go into the year’s final stretch, the underlying fundamental issues remain important here in the United States and globally, especially in terms of inflation. 

Obviously, geopolitical risks continue to be a factor, most notably the Russian invasion of Ukraine. This situation and other inflation matters have prompted commodity markets to take unusual swings. In addition, many central banks worldwide are focal points as people anticipate what will happen next. So it’s a fine time to ride the wave of fundamentals rather than being caught on the wrong side of the tracks.

Okay, that’s all for this article. Nothing here is as magical as pulling a rabbit out of a hat. However, there is content for us all to reflect on as we draw near the end of the year. For some of us, certain portions will be more or less applicable based on our styles, experiences, strengths, and growing edges. As always, it’s now up to you to incorporate this in a more specific way. Until next time, trade well!