Still No Certainty For Santa Rally?

He’s been spotted at malls and in Christmas parades. But we don’t know if Santa Claus plans to show up in the market.

As December grinds along, Simpler’s traders have been shortening the time frames for trading while the market decides whether a Santa Rally will arrive or if this seasonal event will be a “no show.”

Being reminded to trade what they see and not what they “ho ho hope,” Simpler’s traders are checking the economic calendar of events. This week alone there are significant events in the U.S. and worldwide that could impact the markets… and whether that Santa Rally arrives.

Examples include the Producer Price Index and retail sales reports set to be released this week which should provide details on wholesale pricing and its effect on inflation. Also, the European Central Bank has scheduled a press conference to discuss monetary policy designed to improve financial stability in their market. In the U.S., the Federal Open Market Committee is meeting… again.

These events could impact the dollar and the stock market. Volatility in the euro creates volatility in the dollar. This is not the time for traders to do a lot of heavy positioning before those events.

This many calendar events in a short time – added to expectations of a Santa Rally – can stir up more uncertainty in the market. To get through this uncertainty, Simpler’s traders work to scale into trades.

Scaling helps limit risk for your style of trading – day trader, swing trader – or the assets you’re trading – stocks, options, futures. The focus is to start with a small trade, then add to the trades that are performing well. This allows traders to concentrate on smaller trades and diversify by entering more small trades from there – rather than a few large trades with added risk. Scaling into trades, especially in wild markets, has proven a strong strategy for Simpler’s traders.

Traders who jump in with both feet by trading their entire position with single trades can experience costly losses and missed opportunities. Even worse, traders who add to losing positions can put their trading account in jeopardy.

While the strategy of “scaling in” may limit initial profit potential, small-share entries also limit stop-loss costs. This is a strategy each trader must decide to follow based on their trading plan.

Simpler’s traders continue to use scaling to build winning positions with small stops and break-even trades. They find this to be a more strategic approach for risk management during market uncertainty.