In the days leading up to Christmas, and various other times throughout the year, stock market trading thins considerably. Trading volume levels decrease as stock exchanges close early and many institutions are simply happy to hold onto their positions and wait out the end of the year with their gains.
Lower trading volumes mean less liquidity and therefore higher volatility in prices. Because less shares are moving around, there may not be the requisite number or size of buyers or sellers to complete trades as they come in, and this causes larger discrepancies between bid and ask prices.
Stock Market Trends in December: What Should You Invest in at the End of the Year?
Do Lower Trading Volumes Affect the Average Investor?
Because of the general increase in volatility, the main effect that the average investor has to watch out for are the swings in prices. This can cause both increased opportunity for bargains, but you might want to put some stop losses in on your trades as well. Know the levels that you wish to buy and sell at.
When there is more volume, price updates can be more gradual and can spend several minutes if not hours fluctuating between one and two cents in either direction.
It won’t affect your ability to place most trades, however – you just need to keep an eye out on the price swings. For some stocks, you may not even notice a big difference at all.
There is usually another uptick in stock trading in the week following Christmas – then dies down again before the New Year’s weekend before picking back up again in full force in January.
With the lower volume around the Christmas holidays often also comes what many call the Santa Claus rally – upward movements as investors seek to lock in positions before the end of the year. Don’t count on it, though (it didn’t happen in 2008) – because there can be just as much tax-loss selling, too.
Learn the Basics of Stock Options Trading
Outlook for Canadian Stocks in 2010
If you liked this article, please retweet it on Twitter or consider adding me to your blogroll. I’d also love it if you subscribe to my RSS feed for free tips and posts like this one delivered right to your reader or by email (posts are not for duplication).
Related Posts - The Real Costs of Graduate School
- Deflation, Capitulation, Redemption: The Second Wave Is Here
- Market Risks and Challenges That Lay Ahead in the Second Half of 2010
- Investing in Uranium: The 5 Largest, Most-Traded Uranium Stocks in Canada
- Junior Gold Miners ETF, the Bubble in Gold and What You Should Worry About Over the Weekend
Related Articles From Other Websites
