The final week of the year is often one of the most boring periods in the market. Most financial journalists are in holiday, meaning that there is nothing much to watch or read. At the same time, volume in the market is often relatively low and price movements can be inexistent.
Still, if you are not in holiday, this period can give you a good opportunity to make money in the market.
In this article, we will look at the concept of seasonality in the market and then identify some of the strategies to trade during the market during the final week of the year.
Seasonality in the market
The concept of seasonality is an important one in the financial market. For example, it is widely known that the market tends to be relatively muted during the summer months. This is mostly because most investors are usually travelling during the season.
Therefore, after significant volume in the first part of the year, volume tends to dry during summer.
Another form of seasonality is what happens in August and September. Historically, stocks tend to have a difficult period in the two months.
Meanwhile, there is what is known as the Santa rally. This is a period when stocks rally a few days before Christmas. Historically, stocks tend to do well a few weeks before Christmas.
Another seasonality feature is what happens after Christmas. The week after Christmas is often characterized by low volumes since investors are usually in holiday.
Trading at the end of the year: what to watch for?
Tax harvesting
First, since we are in the final weeks of the year, we can expect that volume across the assets will be reduced. This is as investors exit the positions they held during the year and as they plan for next year. This process is called tax harvesting.
It is a process where investors exit their positions for tax purposes. In addition to tax harvesting, many investors will want to start the year afresh with new picks.
Price movements
Second, while tax harvesting will influence the volumes of assets, the price will see significant moves. This is because, the price of the assets is not influenced directly by volume. For example, there might be many bidders and less sellers for an asset which will lead to a hike in price.
Another concept of price movements in the market is to look at companies making big moves. This is because in the market, there will always be some stocks that are doing well as the year ends. Therefore, you can use some free tools like Investing.com and Yahoo Finance to find top movers in the market.
News
Third, you should pay close attention to news. As the year comes to an end, many news professionals will be out for holidays, but you should not be complacent. You should not ignore the nature and volume of news that will come during the year end.
M&A deals could be announced, companies could announce some significant news, and economic data could influence the market movements. Therefore, you should pay close attention to the news.
For example, if you are a stocks investor, you should pay attention to Amazon’s announcement on its sales and activity during the holiday season. This is likely to be market moving news.
Focus on technical analysis
Fourth, you should focus closely on technical analysis. The Fed announce their projections for the coming year, but it can also make its interest rate decisions known.
As a result, in terms of economic data, traders should watch closely, but remember that the main data investors needed has already been announced. This means that the main market movers have already been announced. Therefore, technical analysis will be the main trading strategy for the last part of the year.
Test new strategies
Fifth, since the market activity will be low, it is a good time to test new strategies for the coming year. If you have had a successful year, you should not be complacent.
Remember, it is always good to celebrate your wins but this celebration should not be over-extended. Instead, you should focus on improving your current strategies so that you can have a better year.
A demo mode can help you in this way.
What if you didn’t trade, instead?
In addition, as We have mentioned before, it is okay to take a break. If you are a full-time trader, chances are that you have had a busy year. It has had its ups and downs and chances are that you have had some good and bad times. Every trader has gone through all this.
As the year comes to an end, it is okay to exit your positions and take a break and have a rest. There is nothing wrong with that. In fact, doing it can help you have a better year next year. We recommend that you take a few days off and reflect on your successful strategies and how to improve them.
» Related: What You can do in your free time
Summary
As the year ends, remember that the past has ended. It will not be repeated. Therefore, if you have had a good year, don’t be complacent. Don’t assume that the strategies you used in the past year will be successful. Strive to be a better trader and continue working hard.
External Useful Resources:
- 3 Popular Year-End Seasonal Trading Strategies – Lightspeed
