Believe it or not we are coming into the close of yet another year, at least as far as short term S&P trading is concerned.  November is all but over.  With Thanksgiving this coming week – Wednesday, Thursday and Friday are days to avoid trading.

In December the first couple of weeks is where the best opportunity will lie, but volume will wane from mid month so that’s a good time to shut up shop for the year.  Perhaps I should say volume will wane further, as let’s be honest stock market volume has really stunk for the last few months!

I have actually found Decembers to be quite good months historically and here is a little trick I want to share with you.  This is how and why I play Decembers.  I will trade the first 2 weeks absolutely as normal.  Provided we show a profit at that time I will stop and take the rest of the month off.  I am prepared to venture tentatively into the third week but will only do so if I really need to.  The week of Christmas and the pre-New Year week I simply don’t want to touch.

My goal in December is to make a profit (obviously!).  But over and above this my goal is to close the month not just with a profit but right at equity highs.  I find it psychologically powerful to finish the year right on a high, rather than after a few days of “give back”, even if the cost of so doing means we actually bank a lower profit on the month than we might otherwise if I pressed on right to the bitter end.

3 good reasons

I find this December play important for several reasons, three in fact.  Firstly we all need to take breaks from whatever business we are in.  In this business I try to coincide my breaks with the lower probability times in the market whenever I can and the second half of December is about as low probability as they come.

Secondly I plot my equity curve every single day throughout the year.  This is a necessary part of the controls when managing a fund.  But it is also a very good habit to have when trading any sized account and I had been doing this for years prior to opening a fund.  This chart stares back at you from the screen every single day throughout the month until it gets zeroed again at the end of the month.  By choosing an artificial end to a month, you can engineer the graph to end right at a peak.  Then throughout your 2-3 week break that is exactly the picture that remains in your mind.  Every time it passes through your mind you feel a sense of satisfaction which reinforces your confidence.

Then when you start back after the break your confidence is high which is exactly what you need after time away from the market.   Contrast that with ending on a low or even just ending having given back part of the month’s takings.  In this case the feelings experienced are those of frustration and bitterness.  The longer your holiday the more you regret it and the lower your confidence ebbs.

Which mindset do you think sets you up best for a good January and a good year?

I know many traders find it difficult coming back from any break and I really believe that this sort of psychological programming plays a big part in your return from an extended period away from the market.  If you end on a low the chances are that is exactly how you will start back.  If you end on a high, confidence in your system and your ability will carry through to a great start to the New Year.

If you are an S&P trader, you may not have had a great year this year, most people I speak to haven’t.  It has been the most rubbish low volume environment over the last few months that I can remember in a long time.  However, whether this year is a good one, a bad one or just a treading water sort of year for you, what has past has past so forget it and move onwards.  Work on ending December in positive fashion and on a high.  End it artificially like me to force this outcome.  If you do this it will set you up very well for next year as well as forcing you to have a nice long break which is also very important and regularly overlooked by most traders.

New Year plan

The third and final reason for doing this is that by drawing a line under the year with several days or even several weeks in hand it gives you time away from the trading screens to plan for next year.  With a clear head, uninterrupted by watching the market, you have time to review and evaluate the year just gone and plan what you need to hone to improve your game next year.

An end of year review and New Year plan is essential.  But if you try to do it whilst still trading your thinking won’t be sufficiently objective.  That last losing trade will feature far too much in your improvement plans, when in reality it probably shouldn’t feature at all.  So take a break, clear your mind and start planning for next year without any such influences clouding your thinking.

I am already gathering information and ideas ready for my own annual appraisal and planning exercise for next year.  But I won’t actually undertake the work until I have finished trading for the year.  However as a consequence of starting the data collection for this exercise I have already gathered together a number of items that I think might be helpful to you too.  So over the next few weeks I am going to write a series of articles on each of these.

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