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Like most Americans, Thanksgiving is one of my favorite holidays. But those of you who have traded beside me for a long time in Profit Amplifier know my reluctance to enter new trades on shortened holiday weeks.
One of the worst of these abbreviated weeks is Thanksgiving... and it's not just due to the heavy levels of tryptophan.
The biggest problem we face has to do with trading volume. Historically, on the week of Thanksgiving, we'll see a short-lived burst on Monday, followed by low and erratic volume the rest of the week.
Ever wonder why we see the same pattern year after year? Well, I have your answer.
No one's steering the ship.
The week of Thanksgiving, pit traders and off-floor traders alike are preparing for the holiday and enjoying some well-deserved time off, just like everyone else. As a market maker for many years, I found that most of us followed a common pattern: We'd spend Monday setting up and adjusting our positions for the rest of the week, then head out to spend the week with family and friends, leaving the clerks and junior traders to mind the positions while we were gone.
The market then morphs into a trader's wasteland driven by inexperienced staff. A good number of traders are basically incommunicado from Tuesday through Friday.
Of course, the clerks were told to contact us if there were any major moves in the market or news stories that shifted sentiment in a big way, but for the most part, things tended to be quiet. While these junior traders had a small amount of authority to buy and sell to keep our risk low, they generally weren't allowed to make major adjustments on their own.
So, from Tuesday to Friday of Thanksgiving week, most U.S. trading firms are minimally staffed with traders looking to avoid risk and keep things status quo. This translates into a marketplace with just a few, inexperienced, reluctant traders manning the computers and making minimal trades.
Professionals call this a "thin" market.
The low volume and lack of market participants make recommending a trade much more difficult. Thin markets are weak and easily influenced, making it hard to buy and sell without affecting prices.
Low volume also means poor price execution and wider bid-ask spreads, which both take money out of our pockets.
Stock markets are most efficient and easy to interpret when trading volume is heavy and there are plenty of participants. Having the "smart money" fully engaged is also preferred. None of these factors are present this week.
As I've said before, I learned years ago to never force a trade. It's not worth my reputation... and more importantly, it's not worth your dollars. That's what's happening this week. Just think of it as your annual "turkey timeout."
Thanksgiving should also be a time to reflect. While this is true for everyone, it's especially important for investors. Thanksgiving is the first major break after the summer and back-to-school season and can often trigger a reset or rethinking of certain market theses. Six days off with lots of food and rest gives many of us time to really dig deep and evaluate our plans for the balance of the year.
My top recommendation for now? Enjoy your time with your family this week. There will be plenty of trades when the market resumes its normal schedule on Monday. I hope everyone has a great holiday!
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