During the holidays, many traders take extended vacations and hedge themselves accordingly. Those of us remaining at our desks can have very successful holiday trading sessions. We can make some sharp gains if we pay attention – but we can also be caught unawares and suffer dramatic losses.
Last week I hosted a webinar on the “how to’s” of holiday trading. In short, the action at this time of year tends to be thin, with low volume levels, erratic price moves and share “dumping” (when traders sell losers before end of year).
Here are 5 tips for successful holiday trading that can help you navigate these unusual conditions:
1. Look for erratic price action
The fact that volume levels drop off is a good thing. When volume swells on a selloff, it appears institutions are distributing stock. Oftentimes, erratic price action works as a discovery mechanism. Use it as a signal to scoop up shares in a downdraft.
2. Ignore the noise
Don’t get caught up in the noise around the holidays. So many pundits will try to give you advice. Just pay attention to the market action, because it’ll never fail you. The holiday period is often a bullish time, but not always. The last couple of years saw some sideways action in December, followed by nasty selling at the beginning of the year.
3. Find the leaders
Just as you can use erratic price action to find some great opportunities, you can follow the leaders too. Finding the right leaders or groups is not too hard to do. The best trends are always tough to get on board, but during this slow period, the opportunities may be more plentiful.
4. Trader smaller and faster
Position sizing is paramount to success, especially with option trading. During the holidays, trade smaller, and maybe even trade faster. This will allow you to have even more control over your traders. If a stock flies off the handle or news affects the markets, you won’t have too much at risk. I suggest trading half your normal amount.
5. Watch volatility
Finally, volatility is low – and is likely to stay low. Use any pops in volatility to get long the markets for now, as that has been the protocol for over a year. Who knows what January will bring, but I suspect more of the same with a few shakeouts along the way.
Copyright: badmanproduction / 123RF Stock Photo
