The year is coming to an end and many traders start wondering how to trade during the holidays and whether it makes sense at all. Today, we shall discuss the peculiarities of holiday trading in financial markets and provide you with handy recommendations on how to preserve your trading account.
1. How to Trade During the Holidays, or the Dead Season in the Market
2. Holiday Trading: What Are Its Dangers
3. Trading Over the Holidays: To Trade or Not to Trade?
How to Trade During the Holidays, or the Dead Season in the Market
In the United States, Europe, and many other countries the currencies of which are traded in forex, the winter holiday season starts with Christmas celebrated on the 25th of December. On December 24th, the stock markets are closing early for Christmas Eve. There are also no releases of major economic news scheduled for this time period.
Does it make sense to trade during the holidays? The answer to this question falls within the scope of the nature of liquidity and how well you understand it. Positions of the big players tend to trigger major market movements while these traders aim to exit the market prior to Christmas Eve. Typically, big capital takes a break until January. This dynamic can be tracked down based on the change in the histogram of the Real Market Volume indicator.
What does that mean for private traders
1. The volatility in the market will slow down.
2. The liquidity will be low.
3. There can be false signals in the thin market.
Holiday Trading: What Are Its Dangers
What does the “thin market” mean and what makes it dangerous? The thin market can be compared to thin ice that can crack under the weight at any moment.
When it comes to the forex market, even a small trading volume can cause a spike in volatility due to the weak liquidity during the winter holidays. The candlesticks with large shadows are formed since, in order to accumulate position, big players have to get the orders at the best price which are included in the Depth of Market.
In contrast, a private trader may encounter false breakouts of the key levels, slippages, and increased risks in terms of open positions. The screenshot below illustrates a very exemplary case that took place in January 2019.
Thin Market Because of this, traders may suffer losses and get kicked out of positions by stop loss. There can also be wide spreads and slippages. Plus, the prices may move towards the target very slowly even when positions are profitable.
Trades with a small profit potential may remain open for several days resulting in a possible loss of the majority of profit due to accrued swaps.
Trading Over the Holidays: To Trade or Not to Trade?
How to trade over the holidays in forex, if you’ve decided to do that after all? First things first, you need to track down the economic calendar to be aware of the trading hours of the market.
- If December 24 falls on a business day, the market will close early.
- December 25 is a day off in most countries, with the market being closed on Christmas Day.
- On December 31 (business day), the markets close early.
- January 1 is a day off.
Should you trade on these days? It depends on the goal you are pursuing. If you really itch to make trades no matter what, you can try to maneuver between the days off and early market closures.
But don’t forget about the risks! You have to use a conservative risk management approach, but that still won’t protect you from the slippages and wide spreads. Will it be worth it in the end?
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Learn more about the solution
If you are a newbie, the smartest decision would be to refrain from trading until the end of the year starting from December 24. Dedicate this time to rest (yes, traders do need it too!), education, and analysis of your trading performance over the course of the past months.
This justified rest will do you no harm. What’s more, you will get back to trading with a heightened awareness of what’s happening in the market, clear vision, and renewed vigor.
You can start trading again on the first business day following January 1. In 2021, it will be Monday, January 4. The liquidity and volatility will be improving gradually until about the middle of the month. Make sure to exercise caution and use the conservative approach when making your trades.