Hi guys, hi from Andrea Unger! Today, I’d like to talk about trading on holidays. Is it a good idea? What are the risks?
This is a very common question about trading and holidays. Actually, there are many people who, since they normally have a job that does not allow them to sit at the monitor trading, want to take advantage of holidays to trade, obviously when the exchanges are open.
Is this a good idea? I think it depends on a number of factors.
There are major holidays, when the whole period shows a significant decrease in volumes in the market as well as in volatility, due to the small number of players.
A classical example is the period between Christmas and the New Year’s day. On those 2-3 days, activity is generally very quiet, so it’s very hard to do something that shows good results. The reason is that there is not that much to do, because the market is somehow sleeping.
Another example is Easter. On Monday, the US markets are open whereas the European ones are normally closed. In this situation, we found out that the US markets are also very quiet, not only because of the European close, but simply because most people are still on a holiday mood and they are probably spending time with their families, instead of trading.
So, to sit down and trade during these days, just because you have the opportunity to do it, not having your tasks to do in the office, is not really a good idea.
First, it’s difficult to get something out of the markets that works. Secondly, in these days the markets behave differently from the other days. Volatility, too, is completely different from that of normal days. So, it’s not a real test of your skills in what you do.
Of course, if you are profitable exactly on these days, keep on doing it. However, remember that this is a specific phase of the market and that its behaviour is completely different from the one you find during the year.
In addition to major holidays, there are also some minor or specific bank holidays that take place in some countries only. These specific holidays do not really affect the behaviour of other markets, so you can consider trading.
There is, in any case, another thing that we should consider, which has showed a certain degree of stability. This is a bullish bias on index markets during the holidays’ period.
This is not a discovery of mine. Actually, Larry Williams and, probably, other traders before him, discovered that there is a bias during these periods.
Based on this bias, there exists a setup that consists in going long on the e-Mini S&P 500 or the Dax or any other index future market, two days before the holiday starts and then close the trade after the holiday period.
This means keeping an open position during the holidays to take advantage of that bullish behaviour that normally takes place during those days. This is not like betting, as there is a bias; however, this setup comes with a consistent amount of risk, because the markets are closed and you couldn’t react, if something happened.
I don’t necessarily mean a terroristic attack, which I hope will never take place again, but whatever event that can affect the markets. As you have open positions and the markets are closed, you cannot react to market movements, and this increases risk. (Of course, you may say that the markets are closed during the night as well.)
At any rate, always be aware that there is a significant amount of risk in this kind of trading and that these trades don’t take place very often. Actually, you have about 3 times per year when you can use this setup (Christmas, Easter, Halloween), so there is not that much to do. However, it is interesting to know that there is a bias.
So, if you want to dig further into this, do it and you might discover something.
If you want me to show you some statistics, write it in the comments. If there are enough requests – not just one please – I’ll write something about this.
Well… now I go back on holiday. See you next week!
Ciao from Andrea Unger!