Holiday trading is not worth the risk

President’s Day extended weekend is over and I enjoyed it fully.

I covered all of my positions on Thursday and spent time with family, going to Memphis, visiting IKEA (my wife’s favorite spot and one full of fond European memories for us), visiting the Bass Pro Shop and walking along the mighty Mississippi River.

The weekend was easy to take off because I’ve learned that the risk associated with extended weekends and holidays is not worth the potential reward.  When markets are closed or have shortened hours, large players aren’t present with their ammunitions, and it can take very little firepower to move a market a couple of percentage points.  However, when the big guys come back, they often wipe the previous move out and then set the course they want.  Small traders like me and you need to learn to be patient, watch where they go and jump on their coat tails.  We will never have more information, more computing power or better technology to have an edge on them.  We can however, be more patient than all the other small traders and make a profit.

The other reason why it’s not worth the risk it’s because when markets are closed or have a shortened trading schedule, they tend to not reflect well all the information available to the public.  Also, not all the information has been disseminated, due to the holiday.  When there is an extended “silence,” so to speak, the next opportunity for the market to reflect that information will be at the next open, which will trigger stronger moves than normal.  It’s great if it works in your favor.  Not so much when it doesn’t.  These are the times when your stop orders get jumped and, if you aren’t paying attention, you could get hurt badly.

Here are few examples from the weekend, which, on top of President’s Day in the US, was also a day of holiday in China due to their New Year celebration.

Soybeans:  gaps at the nightly open (didn’t trade at all on Monday morning), in response to various weather reports from South America.  Rallies 16-17 cents until 7:00 am (central) on Tuesday morning.  Big guys wake up and send the prices back to last Friday’s close.

Screen Shot 2018-02-20 at 6.02.01 PM.png

 

Crude Oil: moves higher all day Monday, on very low volume (see the volume bars are at the bottom of the picture). Tuesday rolls in, prices go back down to Friday’s close.

Screen Shot 2018-02-20 at 6.01.30 PM.png

Palladium: one might have gotten excited to catch a reversal in this metal, with a steep and quick ~2% drop (=$2,000 per contract value from 1,044 to 1,024), but the same speed was applied to the reversal, with actual volume, at the 8:30 “traditional open.”   Closed lower, but this morning reversal would have shaken many small traders out of their positions.

Screen Shot 2018-02-20 at 6.00.42 PM.png

Some will point out to the times that a holiday trade, such as the crude oil move on Thursday and Friday of Thanksgiving 2014, would have led to massive returns (if you had been on the downtrend that started two months earlier).  However, these moves are rare and the volume was still significant because many traders were waiting for OPEC’s announcement on that day.

Lastly, there is a “rhythm” to some of the US banks holidays that allow traders to take a breather from the 23×6 watch.  If you can’t take your eyes off the screen and feel like you have to look at your phone’s app all the time and can’t take the break, you may have other trading issues, such as overtrading.  Taking your mind and eyes off the screen should boost your focus for the following weeks, until the next break.

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