Holiday Trading : To Trade or Not to Trade ?

One of the most common questions around this time of the year is whether or not we should consider trading during the last month of the year and the beginning of January. The reasons usually given to avoid trading during this time of the year are usually related to the lower overall liquidity of the market, the lack of “big moves” and the fact that the “big boys” are not within the game (making any trend-following efforts or such likely futile as there is not enough “steam” to build momentum). On today’s post I will tackle the issue of holiday trading with a few examples of past years showing what can be expected, why you cannot make a clear-cut decision not to trade and why you might even consider this a good opportunity instead of a “bad month”.

The end of the year is different from “the rest” because it is a time when several different important things converge. The first important event is Christmas or the end of year holiday which is common to a very large size of the world and – more importantly – to the large size of the world which trades the foreign exchange more heavily. For this reason many traders are on vacation, withdrawing potential liquidity from the market. Another issue is the fact that some hedge funds and other such investment companies avoid trading during this time of the year as this is the time when they calculate and make up their end-year-balances. In December it is therefore not considered unusual for these institutions to avoid trading and dedicate themselves to some other activies until January comes (when their traders return and they can begin a new year balance). Overall the popularized effect of holiday trading is less liquidity and less movement.

Is this true ? Given that I had never done a true analysis of “holiday trading” within the forex market I decided to do an analysis using the Dec 12 till Jan 12 holiday period in order to see if there was anything special about this trading time of the year which would discourage or encourage any particular trading behavior. Above you can see a part of the weekly chart for the EUR/USD for the holiday periods – as defined above – for the years between 2003 and 2008. Statistically speaking, the candle ranges as percentages of daily volatility and the actual character of the movement (trending/ranging) between 2000 and 2009 had the same character as those of the rest of trading periods. This means that in December/January it is not more likely to see a trend (a net movement in one direction) as it is to see it in March or August (or any other month).

The wider chart shown below – which is a monthly chart showing almost the whole period – shows you how the whole January and December candles don’t seem to go towards any specifically predicted direction. They don’t tend to reverse, range, trend or do anything else in a different way than what is done by the other months. As you see the character of the holiday trading season depends mainly on the actual situation going on, in 2003 for example there was a strong trending movement towards the upside while in the same 2008 period there was a very strong bullish movement followed by a sharp bearish retracement. In some years there was a clear lack of volatility while in others there was a surge in volatility for this same period.

The only thing I was able to notice which was reproduced amongst all years was a significant drop in tick volume which happened between the 22nd and about January the 6th. This drop in volume almost always matched a ranging period whose range was on most times at around 2x the 14 day period ATR of the 22nd. This shows that ranging periods tend to happen within this period caused by a general drop in tick volume – which is a proxy for real market volume – which disables the ability of the EUR/USD to trend strongly. I also made similar observations on other majors although other pairs – like JPY crosses – did not render conclusive information.

So should you stop trading in December ? If you are afraid of drastic reductions in liquidity and “abnormal” market conditions then you might consider to stop trading between the Dec-22 and Jan-06 as this is when most of the decline in volume seems to happen. However – for example – attempting to eliminate this trading period from some Asirikuy systems didn’t yield any improvement and often some losses as the systems miss some profitable trades on some years. This means that just because its holiday trading is not a strong enough reason to “eliminate” a system or to stop the trading of any strategy, in order to see how this affects your strategy – ONLY if it lends itself to accurate simulation – you might want to test removing these days from your tests to see if the system does better overall. Accurate evaluation should tell you whether or not it is worth it to stop trading for this period.

As I have said before the fact that this Dec.22-Jan.6 period is most of the time “ranging” might be used to locate a “holiday” specific market inefficiency so perhaps you might even consider the holidays as a trading opportunity instead of a “bad month”. If you would like to learn more about my work in system design and automated trading and how you too can build your own systems using reliable strategies please consider joining, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach to automated trading in general . I hope you enjoyed this article ! :o)

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2 Responses to “Holiday Trading : To Trade or Not to Trade ?”

  1. John says:

    Nice article. I think this may be another myth spread through the FX forums, free “$97 value” ebooks, etc. I haven’t done enough backtesting or live trading to make statistically valid conclusions, but my live trading of scalping EAs is often better than normal on and around the holidays. Interestingly, I’ve seen another stategy that intentionally trades on Fridays and holds the trade over the weekend–another big no-no according to the “experts.”

    Maybe there’s actually an edge for trading during times that you aren’t “supposed” to.

    • admin says:

      Hello John,

      Thank you for your comment :o) What you have observed may probably be inefficiencies which arise due to trading simulation limitations. Scalpers are usually more profitable in backtesting because their simulations aren’t accurate (not even with 99% quality as I have highlighted on several articles below) and systems that trade during Friday, holidays, etc are usually profitable because the backtester doesn’t take into account “worse than stop loss” cases (whenever there is an unfavorable gap in MT4 which would in reality make you exit beyond the SL the program quits the trade AT the SL, something that greatly underestimates draw down on strategies that trade only over-the-week-end strategies) or because the higher spread levels of these times are not taken into account. Whenever you evaluate strategies it is a MUST to take into account the limitations of the simulator being used (like the MT4 backtester) otherwise you are bound to found “great” inefficiencies which in reality do not exist. I hope this answers your inquiry :o) Thanks again for your emails,

      Best Regards,


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