Monday, November 15, 2010

The Daily Note - Holiday Trading

Perhaps one of the most challenging for those who trade regularly and especially daily, are the holidays. Getting ready to the different time frames intra day and then day frames around the the holidays will assist traders, but the biggest effect in trading is the reduced volume causing more volatile prices and spreads.

Most money managers and professional traders will take vacation or holiday this time of the year and what's more, many will liquidate days prior to departure or hold until the beginning of the year. Those of you who follow me and are members know that I've talked about the positioning that actually begins in October for both tax reasons and for rotating in/out of positions in order to get ready for the end as well as the beginning of the year. For many who have not adjusted their portfolios, by this time, it can be more difficult as the year wears to the end.

What we need to add to this problem this year is the fact that we have no idea what this lame-duck Congress will do. The coming year will depend largely on the budget and taxation that they will pass and publicize and pass under the radar. So positioning becomes even more difficult and perhaps short term traders will hold back from trading positions that they may need to close early next year.

For traders entry and exits can be more difficult as less shares are available and the spreads get wider so the requisite number may not be available for the trades. Today, Monday, was the first day that this pattern actually emerged. Notice that no matter what the news, or time of day, the traders popped and dropped more often, also notice on the minute chart, the volume evidence of trades. Many looked on the 5 minute chart what normally would show on the 1 minute. All evidence of lack of trading interest causing lack of momentum.

Those receiving great news may look like they are trading better than usual, but those lacking news become dead or whipped. Also, especially at the beginning of this type of activity, traders are more likely to sell off rather than accumulate. Which may change at the beginning of December prior to the Christmas holiday as many may position into next year as witnessed the last few years of the DJIA . Look at the lows in November and accumulation in December.

Of course, nothing is perfectly scripted, and although so far, it looks to be shaping up in much the same way, be sure to allow for differences due to news and financial woes both here and abroad.

In a nutshell, rather than being more relaxed trading becomes more intense due to the volatility, so if you are new, you may wish to take a lesson from those around longer. Take a vacation and have a Happy Holidays around family and loved ones. To those who simply can't stop or get away, try paper trading or at the very least, reduce your size, expect the unexpected and place fewer trades.

Happy Trading, Living and Dancing

The Daily Pick - DJIA

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