Trading During Christmas

Hoping for some market cheer during the holidays? If you’re planning on trading around Christmastime, here’s a quick rundown of upcoming catalysts, historical volatility, and market hours then.

Market Hours

The holidays this 2016 fall right smack on weekends, which means that markets are closed on Christmas Eve, Christmas Day, New Year’s Eve, and New Year’s Day. In the days between, a number of markets are also closed on certain days so liquidity is expected to be thin around that time. In particular, New Zealand, Australia, Germany, Italy, the United Kingdom, Canada, and the United States have bank holidays on December 26, which is a Monday. Banks in the UK and Canada are still closed for the following day but other markets will reopen then.

December 28 to 30 could still offer a few market moves here and there, as most global banks are open during those days. In addition, there are some medium-tier reports lined up so stocks and currencies could chalk up some quick price action that could offer some last-minute profits for short-term traders before the year comes to a close.

Upcoming Catalysts

Speaking of medium-tier reports, we’ve got the following lined up on the economic calendar from Christmas up to New Year:

  • December 25: BOJ monetary policy meeting minutes
  • December 26: Japanese household spending, national core CPI, unemployment rate, and housing starts.
  • December 27: US CB consumer confidence index, Richmond manufacturing index, Japanese preliminary industrial production and retail sales
  • December 28: Swiss UBS consumption indicator, German import prices, UK BBA mortgage approvals, and US pending home sales
  • December 29: French and Spanish flash CPI, US initial jobless claims, goods trade balance, and wholesale inventories
  • December 30: Australia private sector credit, Chicago PMI
  • January 1: Chinese official manufacturing and non-manufacturing PMI

So, in terms of economic releases, there is no shortage of events to be traded, particularly for the latter half of the week leading up to 2017. In fact, the New Year is set to start with a bang as China will be printing its official manufacturing and non-manufacturing PMI readings for December then. Since January 1 is a Saturday, though, markets could make huge gaps before trading officially starts the next day.

Historical Volatility

If there’s anything we’ve learned from the GBP flash crash earlier this year, it’s that low liquidity that may often result to more volatile price action. That’s because even small orders may move the markets as brokers try to adjust prices to fill those positions or find a counterparty that is willing to do so. Apart from that, trading algorithms may pick up on any significant moves and enter additional orders that can push price in a particular direction for a short period of time.

While most equity markets take a break over the Christmas holidays, it may be worth parking some money in shares that tend to perform well during the yuletide season. These typically include retailers that get a strong boost from holiday sales, shipping and transportation companies that benefit from e-commerce and long vacations around that period, and credit or payment services.

However, there’s the pre-holiday effect to consider as most market participants try to get in on these market tendencies much earlier on. Looking at the historical price action of the S&P 500 for the last 50 years shows that buying stocks a day before Christmas and selling by year-end yielded an average of 15.2% in gains. Meanwhile, buying a day before New Year’s may yield a 19.6% gain, although this may be trickier to practice with the 2016 holiday schedule.

In the forex market, most major pairs have shown a considerable dip in Christmas week volatility compared to the previous trading week, but it’s worth noting that most pairs have still yielded more than 100 pips in price action for those days. Apart from that, USD/CHF appeared undeterred by the slowdown in trading activity then.

With that, here are some things you might need to keep in mind when trading over the holidays:

  • Make stop loss adjustments to account for the dip in volatility but be ready to close positions early in case “black swan” events may occur and trigger a flash crash.
  • Be more conservative in your profit targets since stocks or currency pairs might move in tighter ranges and traders could also be quick about raking in their gains then.
  • Stay on the lookout for profit-taking opportunities and quick reversals around psychological levels and inflection points.
  • Don’t spend too much time watching the markets! Price action is more likely to be subdued anyway, so take some time to kick back and relax.

The Christmas break offers most traders a chance to review their performance for the year and identify things that they could still improve on in preparation for the upcoming trading year. Apart from looking for more profit opportunities in the markets, it’s also worth investing some time in revisiting your trade setups for the past twelve months and making the necessary adjustments in your trade strategy.

Besides, with the eventful year that was, traders might take a much-needed break when they get the chance, allowing the markets to regroup as well. This should allow you to look ahead to the next few months and identify potential market catalysts that may be beneficial. Of course every trader worth his salt knows how tough it can be to tune out of the markets for a long period of time so it’d be helpful to stay abreast of any market developments, but you’d also do your trading psyche a favor by allowing some time to refocus.

With that said, I hope you enjoy a meaningful and prosperous Christmas holiday this year, whether it means catching a few extra pips to add to your account for the year or rewarding yourself with a healthy break. Happy holidays!

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