As Christmas and the New Year are approaching, most traders usually start thinking about taking vacations, what kind of presents to give their family and friends, or looking forward to holiday parties. And with all the ups and downs in the market this year, it’s perfectly understandable that everyone wants to kick back and take a much-needed break.
But for those of you out there who can’t get their mind off the markets or pass up the chance to score a few more wins before 2016 comes to a close, here are a few things to keep in mind if you’re hoping to find any festivities in the forex scene in the next few days.
As you’ve probably guessed or observed, price action is usually subdued in the last couple of weeks of the year as most market participants might’ve closed their books early to crunch their performance numbers before taking off.
I decided to do a little bit of digging on my own and confirmed that volatility indeed goes on vacation mode for SOME dollar pairs, based on the average pip movement (high minus low) of the major currency pairs for the last two trading weeks in December compared to the first two weeks of the month for the past five years.
For instance, if EUR/USD typically moves 100 pips in the first two weeks of December then a 67.18% change means that the pair just moved 67.18 pips in the last couple of weeks. Conversely, if GBP/USD typically moves 100 pips in the first half of the month then a 150% change means that the pair moved 150 pips in the latter half.
As you can see from the chart above, most major pairs saw a reduction in volatility during the December holiday week, with the exception of Cable which actually saw larger price swings for that period from 2011 to 2014. USD/JPY also experienced a pickup in volatility during Christmas week in 2011 and had more or less the same size of price movements in 2012.
If there’s anything we’ve learned from the sterling flash crash this year, it’s that a combination of low liquidity conditions and speculative positioning from news events or economic releases can yield sharp rallies and reversals. With that, any major surprises or big financial headlines during the holiday week could offer opportunities to catch large moves.
Even though most stock markets are closed for trading from December 26 to 30 this year, price action in the forex arena never sleeps since these reports are still up for release:
- December 26: Japanese household spending, unemployment rate, national core CPI, and Tokyo core CPI
- December 27: U.S. CB consumer confidence, Japanese preliminary industrial production and retail sales
- December 28: Swiss UBS consumption indicator, German import prices, U.K. BBA mortgage approvals, and U.S. pending home sales
- December 29: French and Spanish flash CPI, U.S. initial jobless claims, goods trade balance, and crude oil inventories
- December 30: Australian private sector credit and Chicago PMI
If you’re taking new setups or keeping positions open during the days in between Christmas and New Year, just make sure you look out for any significant data surprises or any announcements that could affect your trades then. Better safe than sorry!
Also, with the pattern of changes in volatility, it might be helpful to make some adjustments with your stops and targets. In particular, you could set lower targets for pairs that have shown a notable reduction in historical volatility and you could widen your stops for pound pairs.
Of course, there’s no telling exactly how much movement (or lack thereof) we’ll see in the next few days since this could depend on how majority of traders will be enjoying the holidays. For all we know, traders might be super active and we could see some crazy moves in the markets so Just be prepared for anything and make sure to practice good risk management techniques so that you have a truly happy holiday season! Good luck trading, my friends!
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