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Trading around Christmas time generally gives you one of two scenarios.
The market can be boring and sideways, with traders taking a break over Christmas, or it can give you a really strong move heading into January.
WD Gann wrote that early January was an important time to watch for turns in the market. If you look back over any market, you will often see major moves start or finish early in January. This can be a great way to finish the year, with a nice Christmas bonus from the market!
How do you know whether you will get a good move or a boring, sideways market?
The answer lies with time analysis, which is beyond the scope of this article. However, those of you who have studied Gann would know that if your time analysis is showing you an early January date, you can be pretty confident you will see a turn.
My time analysis is telling me to watch for a turn in the first week of December on the US Dollar/Japanese Yen (FXUSJY in ProfitSource), running into another turn around the 5th or 6th of January, 2009.
Chart 1 below shows the current market action on the Dollar/Yen.
Chart 1
click to enlarge
After a very tradable move down from the August 15 high, the Dollar is trading in somewhat of a violent sideways pattern.
With moves like these, it can be difficult to know whether to expect a top or a bottom if we have a turning date approaching.
In this case, I am watching for a top around the 100.80 level. This was the 50% Retracement Level of the run down, and would give us a double top with the November 4 swing high, as shown in Chart 2 below.
Chart 2
click to enlarge
I am yet to meet anyone who can call every turn in the market, every time. Sometimes, it just doesn’t work out. David Bowden once said “when it comes to trading, the only thing you need to know about God is that you’re not him!” It’s important to remember that – if the market doesn’t give us a tradable signal on our pressure date, we simply wait for the next date.
Many people would prefer not to hold positions over Christmas, as this is traditionally a period of rest, and that’s fine – you can always come back early in the New Year and look to trade OUT of the early January date.
However if we see a Double Top come in early December, there is a very good chance we will see a 1000+ point fall in the Dollar/Yen, into a January low. With the exciting leverage of the FX market, a 1000 point fall equates to $US1000 for every $US100 US margin tied up in the trade.
Would that be a nice Christmas bonus for you?
Be Prepared!
Mathew Barnes
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