Normally, the last two weeks of the year have unusual market dynamics. The vast majority of traders take the time off. This also coincides with governments not publishing economic data, and corporations not publishing reports. Generally, most major issues happen in the new year.
In turn, that creates a combination of trading opportunities for smaller traders who might have some free time around those days. This is particularly true for people who might not be full-time traders.
So, let’s have a look at how you can trade during the end of the year.
There is a big move coming
With everything on hold for about two weeks, or sometimes just a week depending on how the holidays line up, a lot of market-moving events get clustered around the start of the year.
Therefore, traders could use the opportunity to pre-position ahead of that. If you have any open trades throughout that period, it’s recommendable to double-check your stop losses and take profits. That’s because there will likely be a dramatic increase in volatility when the markets return.
On the 1st of January, there’s typically a lot of contracts rolling off, from employment contracts for CEOs to business agreements, to securities lockups. This means traders who are just coming back from the holidays will re-adjust their positions given the new situation.
In general, expert traders position themselves for safety during the extended holiday period. And when they come back, they take on risks in the market.
General trends to watch
That’s why just under 8 out of every 10 years, the stock markets of the world rise in the first couple of trading days in the new year. Logically, a technical correction follows that move, before the market takes on its trajectory for the month.
This might be good for stocks, and currently more risky plays like tech and consumer discretionary. As for currencies, the dollar, franc, and yen could potentially suffer as people pull their assets from safe havens to buy into the new trends of the year.
A new perspective
With traders having had some time off to reflect and balance their strategies, it’s common for professional traders to refine their trading outlook. Getting caught up in the market action could force them to take a particular stance, which they might modify after having some time to reflect. For this reason, traders are often wary of new analyses coming out in the first few days of the year.
Buy and sell recommendations from major investor information suppliers like banks and financial services companies might need some modification. And this could lead to a fundamental shift in the dynamics of some assets over the first few days of the year.
The bottom line is that expert traders generally stay out of the market because it’s a high-risk environment. So, if you are going to get into the markets, make sure you have proper money management and that the trades offer a commensurate amount of a reward.