How to Prepare for Holiday Trading | Bulls on Wall Street

How to Prepare for Holiday Trading

Holiday trading is here.

If this is your first year in the stock market, read this article carefully. The holidays always have always brought a shift in market conditions, as a larger than normal number of retail traders enter the markets.

This year will be especially different. Many are quarantined with their family, off work, and are thinking now is the time to long 5000 shares of the first small or micro-cap company they see being pumped on Twitter.

Watch out for these 4 trends in the markets these holiday months:

Junk Stocks Will Fly

Junk stocks always run during the holidays. When a bunch of new traders start trading, they do it during the holidays, and of course, they buy the cheapest stocks. They perceive that these companies have the most upside.

No one wants high probability, consistent, 5-10% returns. Everyone wants that 1% chance of doubling their money with a turd. While pigs can fly, they don’t stay airborne for long. You will likely see many small-cap names get pumped over this next month or so. DO NOT CHASE THE HYPE. If you trade these names, don’t marry them.

All of these stocks are small caps for a reason. There is a 99% chance all the small-cap names you will see running the next few weeks will be down 80-90 percent from their highs within a few months. These are trading vehicles, not investments.

Tax Loss Selling

You will see this phenomenon as we approach the end of the trading year. Traders and investors holding losing positions will unload them close to the end of the year so they can write off the loss to offset gains to reduce tax liability.

You will see this especially in names that got hammered this year. After a crazy year like this, there were many sectors that got crushed and still haven’t recovered. Airlines and Cruislines are sectors that will likely experience this, with these sectors crushed due to the pandemic.

I would anticipate these names selling off sometime before the end of the year, as many investors look to take their losses in these companies. Despite rallies on the vaccine news, many investors are still down huge in these names.

What to Do During the Holidays

We’ve got a long weekend coming up. The market will be closed for most of the next 4 days. This is an amazing opportunity to refine your trading strategy and grow as a trader. The real money in the markets is made by the work you do when the is market closed. Make sure to do the following:

  • Journaling: Review your recent trades
  • Learn new strategies
  • Study charts
  • Run scans: Build and refine your watch list
  • Read trading books

“Santa-Claus Rally”

This is what follows the period of tax-loss selling. This period is when oversold names rebound from investors dumping their positions to get the tax write off. This usually happens late in the year, or in January.

Keep in mind this year is not your typical trading year. Our swing trading mentor, Paul Singh, hit the nail on the head:

We will be doing a Stocks and Coffee webinar this weekend with myself and Paul to discuss these topics in more depth, and talk about the stocks and sectors to watch into the end of the year.

Holiday Trading Hours

The market has adjusted hours for the holidays:

Thursday, November 26th: The stock market will be closed.

Friday, November 27th: The stock market will close at 1 PM, instead of 4 PM.

Thursday December 24th: Market closes at 1 PM.

Friday, December 25th:  Market will be closed.

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