Santa Claus Rally: Is It Really A Christmas Gift For Traders?

Seasonality is an essential part from the financial market. It refers to several ways in which asset prices move at different times of the year.

For example, the market is known to see Low volume at the end of the year Because most people are usually on vacation.

In this article, we’ll look at what a Santa Claus rally is and how to benefit from it.

Related “ Seasonality of price and why it matters

What is Santa Claus Rally?

To understand what a Santa Claus rally is and what it means, We need to explain what Santa is and what do you mean. Santa Claus is a famous character associated with the Christmas season. It is the unofficial sponsor of Christmas in the United States.

Santa is associated with Good stuff Like gifts, mostly for children. Retailers like Macy’s and Target use Santa as a marketing game during the season.

In line with this, the Santa Claus rally is defined as a situation in which stocks rise towards Christmas Day. This rally is mostly caused by the perception that stocks and cryptocurrencies are doing well in this period. As such, traders tend to buy assets, which leads to more price movements.

Related “How do you trade during the end of the year?

Santa Claus march history

The concept of the Santa Claus rally began in the 1970s when some investors noticed that stocks tended to rise sharply before Christmas.

They based the argument on the fact that the S&P 500 tended to rise more than 1.3% on average during Santa’s bull run. Other statistics show that SPDR The S&P 500 rose 18 times out of 27 Where Founded in 1993.

When does Rally Santa start?

To be clear. Unlike real seasons, There is no well-defined period of when it starts and when it ends.

some Analysts Believe that collects santa claus It starts from November till January. This is an important period because it is also the holiday shopping season. Americans spend billions of dollars during the holiday season, especially after the Black Friday event.

Data compiled by CME Group shows that the S&P 500 typically returns around 1.42% over that period. The average for the month of December itself is around 1.37%. some merchants Believe that Santa Claus The gathering begins a week before Christmas.

Related “ How to trade a rising stock market

When does the Santa crowd end?

In keeping with the previous part, there is a common question as to when the Santa Claus Parade ends. As mentioned, there is no exact date on which the Santa Claus parade begins. similarly, There is no day it ends. Some investors believe it ends shortly after Christmas as the market volume is significantly lower.

In some cases, Santa Rally may end one day before Christmas, as traders prepare for the season break.

Is Santa Claus march real?

Another common question is whether Santa Claus’s march is real. In other words, do the buy-and-take during the Santa Claus parade It always leads to positive returns? While proponents may think so, the The real answer is no.

Santa Claus’s rally, in our opinion, does not always work Because of the main drivers of the financial market. In most cases, there are usually many factors that affect market performance. For example, in 2008, the market was reacting to the global financial crisis.

similarly, in 2020the financial market reacted to New developments related to Covid-19. Other common topics that move the market in this period are monetary policy and corporate earnings.

The effect of Santa’s march on the market

So how does the rise of Santa Claus affect stocks and other financial assets? It was Santa Claus gathering Created with a bias towards the stock market. However, a closer look at the market shows this Assets are usually interconnected.

This correlation is most evident in stocks and cryptocurrencies. In most cases, cryptocurrencies tend to do well in a period when stocks are rising, and vice versa.

A closer look at the cryptocurrency market shows this Bitcoin reaches an all-time high before and after the Christmas period.

Its first major high ever occurred in 2017 when it jumped to nearly $20,000. The next major ATH event is in 2021 when it approaches $70,000.

The forex Market It usually trades during the Santa Claus parade. This means that it does not show any unique characteristics during the period.

Santa Claus trading strategy

If Santa Claus Rally works as advertised, then… The right strategy would be to buy the shares and take them out. However, as we explained above, this is not a good business approach since Santa gathering It does not produce positive returns every year.

Therefore, we recommend that Traders use their existing strategies To earn money during this period. If you are a scalper, swing trader, or algorithmic trader, you must learn to stick to your strategies. Besides, there will always be trading opportunities during this period.

Related “ How to develop an algorithm trading strategy

A caveat for trading over the Christmas holidays is that The financial market is experiencing low volume During this period since large institutional investors are usually kept away from the market.

Trading in a low-volume environment has its risks, especially when considering low-volume stocks and cryptocurrencies. As such, you should always be aware of common pumping and dumping systems.

Summary

In this article, we’ve looked at the concept of the Santa Claus Rally and how it works. We also evaluated the history of the Santa Claus rally, whether it is a good strategy, and some of the best strategies to use.