A lot of people do not trade much during the holiday season.
This can be a problem, since we need volume to trade, and it may not be there.
How do we approach this as trend trader?
You can catch the podcast here, or simply continue reading on.
Episode 27’s question is from Jalen
“I heard volume dries up over the holiday season. Should we be out of the market right now”?
— Jalen from Jersey City, NJ
For clarification’s sake, we’re talking about December and the start of the New Year.
Bah Humbug!
We spoke at length about the need for Volume as trend traders back in the Volume blog post.
So to reiterate, if volume is typically not there, we need to either trade with less risk, or not trade at all.
And keep in mind, during the December holiday season, many firms are taking off for the holidays, and many traders are closing long-term positions for tax reasons.
If low-volume occurrences are happening every December, we certainly need to be aware of this.
If we can pinpoint these times of the year where it’s always slow., we can save ourselves lot of pips simply by taking a break during these times.
And as I always say, “We win, by not losing”.
Can we solve a puzzle here?
Run The Numbers
Remember the Volume/Volatility video? If you do, I gave out a tool I use every trading day called the Euro VIX.
You can go here to access it.
So I made it into a monthly chart, and took the overall number of the close of the monthly candle to see if December really is a month where things dry up. If it is, consistently, we can make adjustments if needed.
The following data may not show up well on mobile, fair warning.
But here’s what I found over the past 5 years. Highs and Lows are highlighted Green/Red:
–—- 2018 — 2017 — 2016 — 2015 — 2014
Jan – 8.79 — 8.95 —- 10.11 — 12.68 — 7.90
Feb – 8.33 — 8.68 — 13.05 — 10.25 — 7.05
Mar – 7.05 — 5.65 — 9.46 — 13.78 — 7.11
Apr – 7.23 — 8.96 — 9.35 — 13.52 — 5.90
May – 8.77 — 8.08 — 10.18 — 12.88 — 6.64
Jun – 7.50 — 7.21 — 10.23 — 14.10 — 5.03
Jul – 6.69 —- 8.30 — 7.80 — 10.94 — 5.44
Aug – 8.04 — 8.68 — 7.01 — 13.41 — 6.07
Sep – 7.26 —- 7.58 — 6.66 — 10.92 — 7.56
Oct – 8.31 —– 7.04 — 8.85 — 11.27 — 8.21
Nov – 7.90 —- 7.49 — 12.93 — 13.80 — 9.02
Dec – 6.99* — 6.81 — 11.28 — 10.07 — 9.72
* December 2018 isn’t over yet at the time of posting
So what can we conclude?
Not much unfortunately. Except for 2015 was the shit!! I remember it well.
And summer 2014 was brutal. I sat out most of it. Not fun.
December did come in last place twice, but not by much, and actually came in first in 2014.
If there was a marked difference between December and the other months, I would make adjustments, but there really wasn’t in my opinion.
And if you got caught up in the “Sell in May and Go Away” principle where people abandon summer trading, you missed lot of opportunities.
But in the end….
“It Doesn’t Matter!”
It Doesn’t Matter?
It doesn’t. Wanna know why?
Because we have volume indicators, and tools like the one above to show us day-by-day if we should be trading.
Even during late December, where you can be fairly sure things will slow down, there can still be opportunities.
And our indicators and tools will tell us where.
Daily Chart FTW
On a larger scale, this is yet ANOTHER advantage of trading the daily chart like we do here.
If volume truly is going to be slow, for an extended period of time, every year, intraday traders are screwed.
The volume they need is not going to be there, for days in a row, and this can be costly.
By zooming out and trading the daily chart, we can recognize these times, but also know when there ARE opportunities to trade in these slower months.
This way, we don’t have to sit the whole month out on purpose, and we wouldn’t have missed out on that bomb-ass December 2014.
Just when I can’t think of any more advantages to trading with a system of indicators and using the daily chart, more keep coming!
What About New Years?
I’ve gone back and forth on this.
But I’ve come to a conclusion that works for me. You do what you like here.
I close out all of my open trades on New Year’s Eve, wait for New Year’s break to pass, then wait to reenter the market.
You need to see if there’s any shenanigans going down first. Because sometimes there is.
This is fine, because if I have to sit it out, so be it, it’s the only actual time of year I do other than Election Day.
The sun will come up tomorrow.
What you want to avoid, is taking unnecessary losses. Because as you know by now — we win by not losing.
Don’t take losses you don’t have to.
Conclusion
Not trading in December and near the holiday season is overrated. Use your indicators. You’ll be fine.
Avoiding the New Year nonsense, whether it comes or not, is important.
Refer to this blog this time next year if needed.
— VP