Trading Around the Holidays

Alan Penny

24 December 2019

3 min read

trading around the holidays

  • Market behavior typically unpredictable over holiday season
  • Holiday market hours, lack of liquidity may pose risk 
  • Smaller positions could work in traders’ favor  

During this time of year, a lot of traders will make the mistake of jumping into the market as per usual with the same type of strategy. By doing so, they put themselves at great risk as the markets behave differently over the holiday period. This is because orders may be spaced far apart, and of course, there won’t be as many of them. This is a bit of a double-edged sword, as it can make markets move very little, or somebody with a sizeable position could jump into the market and make them move very rapidly. There does seem to be no “middle ground”, as there are going to be typical operations going on.

Special hours of operation

Keep in mind that there will be special hours of operation in almost all markets. Even the currency markets will be difficult to access, as most brokers will close for either Christmas, New Year’s Day, or both.

Most traders will wish to be out of the market over the gap of time that the brokers close because there’s nothing you can do to protect your position.

If a market operates during special hours over the holidays, you can have a position open in a currency pair on Christmas Eve, only to see the market move against you due to some type of news while they are closed on the day after Christmas. Because of this, most traders will wish to be out of the market over the gap of time that the brokers close because there’s nothing you can do to protect your position.

The futures market

The same unpredictable situation applies to other markets such as the futures market. The futures market does typically open up at the end of the Christmas session, but depending on where you are in the world that may be on the 25th or the 26th.

Various futures markets will open and close at different times. For example, if you are trading gold it may open up right away at midnight GMT, but something a little less active like the cattle futures market might open up something like eight hours later.

Keep in mind, this is a situation that continues to cause a lot of chaos for traders, so as a retail trader you are probably better off leaving things be until the next day. The same thing can be said for New Year’s Day, as all of these issues come into play.

Lack of liquidity

There is also a major lack of liquidity over the holidays. For example, as was alluded to earlier, markets may choose not to move simply because there are no orders. However, if somebody comes in with a large position you can see the market reach much further than usual trying to fill that position, knocking the market for or against you in a very erratic manner that is not only violent but also very unpredictable. While some traders get excited about the idea of huge moves, it should be noted that this can cut in both directions.

Smaller positions

If you do find yourself trading around the holiday hours, one of the smartest things you can do is cut down your position size. Yes, you can make money, but you can also see the market turn right back around against you, and if it’s a full-size position your losses may exceed your expectations.

Written By
Alan Penny

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