Christmas week: a quiet chart with a nasty spread

[Shadow Trader]

It is the afternoon of the 24th, the chart looks calm, candles are small, and the first scalp feels easy. Then a stop gets hit by a spike of three pips that reverses straight away, with the spread flashing wide for a second.

That is typical of thin year-end liquidity. Fewer participants means less depth, so a modest order can move price further than usual. The quiet ranges encourage tight stops, and tight stops are what the occasional spike takes out.

Spreads also widen around the rollover in this period, and some brokers change hours or reduce availability on certain instruments over the holidays. Dates differ by broker, so the published holiday schedule is worth checking instead of assuming a normal day.

The other thing is that moves, when they come, are less reliable. Breakouts fail more often in thin books, so momentum ideas sometimes struggle while mean-reversion ideas behave better, though even that is not guaranteed.

A sensible option for some is trading less, or not at all, through the period, since the cost of each trade is higher and the edge is smaller. Doing nothing is a position too.

How does anyone adjust, if at all, between Christmas and New Year, and has a thin-market spike ever caught a stop that would otherwise have been fine?