It’s that time of year again already…
The markets wind-down, the big players jet off to sunnier climes (or to their alpine retreats) and we’re left with what can be treacherous trading conditions.
So will you be taking a trading break over Christmas?
The final call is yours of course. But I do recommend to my students that we stand aside, enjoy the festive fun, and come back to trading fully invigorated and ready for action in January.
The trouble is, with much of the liquidity absent over the holidays the markets can be left exposed to nasty jolts of volatility.
Is it underhand tactics by those who’ve got the weight behind them to move the markets around, are they deliberately manipulating price? Or is it just the fact that the usual big dogs are not on patrol to keep the markets contained in a more orderly fashion?
The jury’s out on that one but don’t be surprised to see the markets move in unusual ways.
Why we’re the ones who tend to feel the effect in OUR pocket:
And the lower liquidity can also have an adverse effect on the size of the bid/ask spread quoted by your broker or spread bet provider too. He’ll be covering his back against flightier conditions and will be looking for a bigger piece of your trades by widening out the spread whenever he sees fit. Unfortunately, as ever, we’re the ones who ultimately feel it in the pocket!
And just in case I’ve not totally convinced you yet…
The end of the fourth quarter typically sees the institutions adjusting holdings on their positions. They’ll be reporting on annual profits and moving assets around accordingly. And that can all contribute to the lurching see-saw effect in thinner markets too.
Now you might be thinking “what’s he making such a big fuss for? I was quite happy to take a couple of week off anyway, thanks all the same!”
But I well remember a time when I’d absolutely dread not being able to trade. Weekends were bad enough (it can’t be normal to feel so miserable on a Friday night can it?) but the thought of a self-enforced absence over the holiday period would have brought me out in a cold sweat!
A well deserved break can help your body recover!
This all goes back to when I was actively scalping the Bond Futures…
I’d be at the screen from around 1pm UK time (just before the Chicago pit open) to 8pm. And when I say at the screen I mean really at the screen. Hunched over, nose inches from the computer monitor, shoulders held tense up around my ears. No wonder I felt physically exhausted by the end of the session!
At one time I had an annoying twitch in my eyelid (you know, the ones you think everyone can see, like you’re blatantly winking at them) and this thing lasted for, no kidding, six months.
I tested every background colour on those charts I could think off to try to make it a bit easier on my squinty eyes (duck-egg blue has a certain soothing effect, in case you’re wondering). And it finally went away during a 2 week family holiday and a break from active trading!
I can joke about it all now, but looking back it was my body’s way of telling me I was putting too much strain on it. So as strange as it sounds, a short trading-break can help you recover physically too.
Anyway, the timeframe of my market outlook is a bit longer term these days. I don’t fancy getting trapped in positions that are still on the boil when the markets have those mid-week shutdowns for Christmas Day and New Year Day too so I’m quite happy to stay away until more favorable conditions return after the break.
But just because you’re not actively trading doesn’t mean you should switch off completely!
This Christmas break is a great opportunity to take stock of where you currently stand and start preparing yourself for 2015.
Here are 5 ways you can improve your trading over the Christmas holidays:
It is the obvious one, but while the markets are quiet why not cross a title or two off your trading reading list? It doesn’t have to a dry and technical ‘how to’ manual either.
There are some great financial story tellers you can learn from too. Michael Lewis’ latest – Flash Boys – is all about the rise of ‘black-box’ high frequency trading (here’s a link to it on Amazon – click here). It gives an insight to where the future of trading may lie and he rarely lets you down when it comes to riveting insights of what’s really going on behind the scenes in ‘big’ finance. It’s all good food for thought.
2) Review your performance
So how was your year?
Did you do as well as you hoped in 2014?
Did you do even better? Or worse?
Now’s a great time to go back through your trading journal or your record of trades, and look for any recurring patterns.
Do you notice any patterns of strength; trading opportunities you can capitalise on in future?
You might notice chart patterns you seem able to ‘synch’ with effortlessly. Or a particular time-duration of trades that seems to work well for you.
And on the other side of the equation how about filtering out any weaknesses too?
Are there particular set-ups you just don’t seem to get on with?
Or can you see that you seem to struggle with managing longer term trades and the extra patience they require?
Taking a periodic retrospective review can help you uncover some surprising insights into your own performance and give you pointers you can use to instantly improve it.
3) Backtesting new ideas
Did you have a lightning-bolt idea for a new strategy that you’ve never got round to testing.
Or how about those new methods and approaches you’ve been reading about but just not looked at seriously yet?
Keep a note of your ideas and intentions in a notebook and you’ll always have a new backtesting project to work on when the markets are off limits.
Some would say this is where the real ‘work’ of trading is actually done.
All the effort goes into developing the strategy or approach leaving you the eventual easy task of rolling it out live.
4) Set your KPI for 2015
Is there a particular aspect of trading you’ve been struggling with?
If you know you’ve been lacking in a certain area here’s a good way to measure, hold yourself accountable and aim for an uplift in your performance:
Select a simple key performance indicator (KPI) for the first quarter of 2015 (it’s best to do them over shorter periods of time – a kind of step-at-a-time approach) and be ready to grade yourself on how well you did come the end of March.
The important thing is to make sure there is a clearly quantifiable element to your KPI: “I will enter at least 95% of the valid signals my strategy generates” or “I will have placed at least 30 trades on my micro-account as an experience building exercise” are examples of simple, measurable performance indicators.
You don’t need to aim for the stars, just go for the next small logical step you can identify on your journey to consistent trading.
And I’ve left the best one until last…
5) Join the TradersNest.com academy!
OK, I hold my hands-up… I’m completely biased on this one!
But if you’re at an early stage in your trading adventures, or if you’d just like a refresher course on what I’m sure are the crucial components of a smooth running trading campaign, head on over to my new website – TradersNest.com – and work through the ‘Trader’s Academy’ training course I’ve uploaded for you.
It’s 100% FREE and you just need to register for a free membership to access all the content. You can pop into the forum and say “hi” while you’re there too if you like!
This is where I’ll be spending a lot of time over the Christmas break. I’ve got lots of new content to get uploaded for you and I’m looking forward to getting to know you much better in the forums too, I’ll be there every day so please do sign up for your free membership if you haven’t already.
You’ll receive your next weekly eletter after the festive break (on Tuesday 6th January 2015) so it just leaves me to wish you a very Merry Christmas and a happy and prosperous 2015!