As Christmas draws near, it is important for binary options traders to have an understanding of the trends and events that are commonly seen during this part of the year. Without this, traders leave themselves vulnerable to potential price moves or in missing some of the advantages that can be exploited from the price activity that tends to be seen.
Here, we look at some of the market characteristics that can be seen during the last weeks of December and into the New year.
1 – Understand Historical Trends
The first and most important thing to remember is that the market behaves in relatively predictable ways at certain times of the year. Unsurprisingly, investors and traders are looking to close up shop and take their vacation time (just like in any other business). This, in essence, causes markets to experience lower trading volumes and when we look at the historical data, there are almost no exceptions to this rule.
Since there are fewer active buyers and sellers in the markets, there are also fewer changes in price, when compared to normal trading periods. Understanding this common behavior can be critical when making trading decisions.
2 – Prepare for Range Bound Action
Since there will generally be fewer changes in prices during the Christmas trading period, prices will typically develop tight trading ranges. This is important because certain trading styles (such as trend trading or breakout trading) will generally not be effective. As an alternative, rangebound strategies tend to be the best approach. Here, traders will be looking to buy (enter into CALLS) when prices approach support and sell (enter into PUTS) when prices hit resistance.
This approach presents a very easy method of trading and since ranges tend to be predictable at this time more than any other, there is a great chance to make short term gains with binary options.
3 – Prepare for Potential Swings in Volatility
One unfortunate fact about the markets, however, is that there are no 100% certainties. And since there are fewer traders actively participating in the market, there is a possibility (albeit a small one) for drastic price gaps if a major order is placed. Essentially, since there are fewer traders during these times, it is much easier for large trading orders to push the market. Because of this, the suggested tip is to use protective measures (such as stop losses or reverse options orders) in order to safeguard against these moves. Luckily, options allow traders the “option” to buy or sell an asset, so they are better suited for dealing with moves like this when they are seen.
4 – Consider Staying on the Sidelines
As always, there is the choice to simply wait “on the sidelines” until markets return to full strength (normal trading volumes). One essential element of trading is not only knowing when to open position but also to know when to stay out of the market. For the most part, price activity will move very slowly during the Christmas period, and this limited price movement will also limit potential for profits.
This does not mean that money can’t be made during these periods (indeed it can) but some time off from the market should at least be considered so that you can “recharge your batteries” after a long trading year.
5 – Watch for Special Holiday Bonuses from Trading Brokers
Last, always look to check for special holiday bonuses that brokers will scheduled to entice new clients. These will often come in the form of matching deposits or in a number of commission-free trades. These offerings are more likely during the holidays and can provide a nice boost to your trading account balance. Check out our list of approved brokers here.
Trading Tips for Christmas
1. With online shopping on Cyber Monday this year hitting record levels, it is becoming clear that long term trends in shopping behavior are changing to favor retailers with a large internet presence. Most companies in this space are accompanied by excessive P/E ratios but this is not the case with eBay (trading at 17 times earnings). Look to enter into 1 month CALLS ar $50.
2. With the latest retail sales results from online companies, comments from FedEx showing expectations of over 280 million shipments this holiday season (a 13% increase in Christmas shipping volumes) are not all that surprising. Shipping companies are one of the main beneficiaries of online sales and while trading at 14 times earnings, FEDEX is suitable for CALLS at current levels ($90) with one-month expiries.
Discuss and Share more Trading Tips for Christmas Time on our Forum!