E How Are The Financial Markets Affected By The Holiday Season?

Santa Claus has arrived in town, and he brings festive cheer with him to everyone. If you’ve ever wondered how the holiday season impacts upon trading activity on the world’s financial markets, you’re in luck. First of all, holidays imply time off, and that simply means that there is less trading activity on the world’s financial bourses. Whether you’re trading the Dow Jones Industrial Average, the Nasdaq 100, the S&P 500 or any of the European stock markets – the holidays will lessen the amount of time available for trading, and therefore, reduce the overall level of trading activity.

How about the Pre-Holiday Season Effect on Equities?

In the United States, equities markets are closed over the following 9 holidays, including the following: Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Election Day, Thanksgiving Day, Christmas and New Year’s Day. But this doesn’t tell the full picture because there is interesting trading activity taking place in the markets with respect to these holidays. Stocks tend to behave in a certain way in the 2 days before each of these holidays, and by being cognizant of this reality, you can certainly profit off short-term trades and long-term investments. 

Of course, it requires a little insight and understanding to generate the types of returns you’re looking for. The typical strategy that one should adopt is to buy shares 1 or 2 days before a holiday. What happens next is that short-term equities traders would sell those shares immediately after the holiday. If you were a long-term investor, you would wait until the end of the year to sell the shares. Believe it or not, both of these strategies have proven to be highly profitable over the past five decades. What actually happens here is that traders will sell part of their asset holdings (equities) prior to the 3-day holiday so that they will avoid any of the negative effects that may result. As you sell equities, the price of those equities moves sharply lower, and in so doing presents for profitable buying opportunities.