Well, the holiday season is here now starting with Thanksgiving. This is followed by a month of holiday fun ending with Christmas and New Years at the end of December. This is all good but how does it affect us as traders? There are various ways that this holiday time can impact our online trading including our emotions and our risk. These are two things I would like to discuss a bit today.
First, the holidays season seems to cause traders to leave. They like to spend time with their family and friends and take time to relax. This means that the markets can trade a bit light. With this light trading come heavy volatility in the form of the market reacting strongly to somewhat small news announcements. It can also do the opposite and cause the markets to remain a bit flat. In either situation we need to be cautious of our trading.
So how can we protect ourselves when the markets are more volatile? Well, we could simply not trade, although that is not what most traders would choose to do. We could trade as usual but that might not protect us from the increase or decrease in volatility. Most traders will choose to do something in between. One suggestion would be to simply decrease the amount you are risking. So if you normally risk 2% consider dropping it to 1%. Or if you risk 1% drop it to ½ %. This way you are still trading while adjusting for the added risk that you might encounter over the holidays.
The other issue that many traders have to deal with is there emotional side of things. The holidays can bring up emotions that don't happen at other time during the year. It could be that we need more money to buy gifts so we become more aggressive than we should or we "check out" because we want to relax over the holiday. Whatever it may be, just make sure you check yourself before you begin trading to make sure you are emotionally read to deal with the holiday market.
So at the beginning of this holiday season, take some time to review how you will handle and trade a market that may be different than it has been the rest of the year. By being aware of these possible conditions we can take steps to avoid the negative impact the could otherwise have on your trading.
One last word of advice. With the markets trading with higher volatility and with emotions at higher levels take some time to relax and enjoy the things that are most important. This will recharge you energy and help you to prepare yourself to become a better and more focused trader.