Trading the Santa Claus Rally

This time of year, the markets and traders are subject to two patterns of mass psychology. There is the Santa Claus Rally, which is followed by the January effect. Year after year, these events can be seen in price action in the stock market. The Santa Claus rally is a push in stocks that often occurs in the week between Christmas and New Year's. There are many explanations for the phenomenon, including tax considerations, happiness around Wall Street, people investing their Christmas bonuses, and the fact that the pessimists are usually on vacation this week. But it happens year after year, and an observant trader can make smart trades. The January effect follows this. The most common theory explaining this phenomenon is that individual investors, who are income tax-sensitive and disproportionately hold small stocks, sell stocks for tax reasons at year end (such as claiming a capital loss) and reinvest after the first of the year. Another cause is the payment of year-end bonuses in January. Some of this bonus money is used to purchase stocks, driving up prices. Beginner, intermediate, technical analysis, shares, CFD, trading strategy

Barry Norman
The Director of Investors Trading Academy as well as a published author and educator. Barry brings with him over 35 years of financial market knowledge and experience. He holds an MBA in Finance and Economics from UCLA and an undergraduate degree in Economics from the University of Maryland. Barry was award the title of “Best Education in Europe” by Global Banking & Finance. Barry is also a presenter for the MoneyShow and many well-known news sources.