Approaching Holiday Trading Times In The Market
Bill Poulos | Nov 19, 2018 03:15PM ET
This week we come to the end of the “Non-Holiday” trading time in the markets. This means that the already volatile markets may become even more non-deliberate in how they move. With the Thanksgiving, Christmas and New Year’s holidays coming up over the next 6 weeks, we need to be prepared for whatever happens with the price action in the markets. The first thing we need to understand is that during the holiday times, the number of market participants drops which can cause the market to trade flat or it could cause the volatility to increase.
Because of the unknown, we need to be even more diligent in using proper risk management in our trades. Some traders will even plan time off during the holidays to avoid some of the market risks associated with the lower liquidity we see. Whether you stop trading around the holidays or simple cut back on what you are doing, you will want to have a plan on how you will trade during these times.
Before we look at what happened in the market this week, let’s take a look at the longer-term chart of the DJ-30. In the chart below, you will see the weekly candles as well as the indicator called the average true range (ATR) on the chart of the DJ-30.
There are 2 main things we need to look at with this chart. First, notice the price action that has been happening during this last year – 2018 (highlighted in yellow). The price action that we have seen this year is significantly higher that what we have seen in the prior 5 years of time on the chart. Notice how choppy and wide the price range has been this last year. The second thing to look at is the ATR indicator. This indicator shows us how much the price has been moving on a weekly basis over the last 14 weeks. You can see how the average price action has moved up during this last year. If you look back in 2013, the average range of the price movement on a weekly basis was in the 300 - 400-point range. This year it has been moving in the 400 – 1,100-point range. This is a significant increase and one of the reasons trading has been so volatile this year. Just keep that in mind as you are looking to take trades during the rest of the year and especially during this holiday season.
In the chart below, we are looking at what happened this last week. As you look at the right-hand side of the chart you can see that we have pushed back down once again.
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DJ-30:
Last week we saw the markets try to rebound from the strong down move that we saw over the past several weeks. In fact, the price had move back above the 50-period simple moving average last week. This week, we saw that up move come to an end as the sell off on Monday pushed the prices back down below the 50 SMA. While we are not at the recent lows, the failure to stay above the 50 SMA is a concern that the price action may be more comfortable moving below it. This could lead to a longer-term downtrend as price begins to find new lows.
Try to keep in mind the facts of big volatility along with the markets approaching the holiday time as you are making decisions on how much risk you will be taking in your trades. While you don’t need to stop trading or be fearful to trade, you do need to make the appropriate adjustment to how much risk you will be taking during these market conditions. As long as you make those adjustments, you can still trade confidently as your setups occur on the charts.
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