Trading Tip: Beware of a New Year Whipsaw

Trading Tip: Beware of a New Year Whipsaw

While this year may turn out to be different given the new U.S. president and policies (e,g, tariffs, tax cuts, etc) could impact the bond and global markets, I would be remiss not to give a warning to beware of start of a New Year whipsaws.

It is also a good warning to keep in mind at other times of the year, such as the start of a new quarter and end of summer. In any case, it might not be until the end of the following week when the U.S. December jobs report is released that the picture going forward gets confirmed. In the meantime, stay on guard for whipsaw type trading as the market returns to full liquidity

What do I mean by a whipsaw?

In trading, a “whipsaw” refers to a situation where the price rapidly moves in one direction, only to quickly reverse and move sharply in the opposite direction, often catching traders off guard and potentially leading to significant losses if they are not properly positioned to handle such volatility; essentially, the market appears to be “sawing” back and forth rapidly?

Trading Tip: Beware of a New Year Whipsaw

As a rule, I am wary of start of the year moves. There are times I do not look to trade until a full week is in or otherwise just take it one day at a time.

One reason may be muscle memory from a long time ago where I got caught in a whipsaw during the first week and it took a long time to dig out of that hole. I have seen too many New Year false starts not to keep me cautious betting on early trends continuing.

So, my Tip of the Week is to be aware of early in the year moves and a risk of false starts/whipsaws, and to keep it close to the vest until full liquidity returns to markets.

This article was  published in the Global Traders Association (GTA)  Trading Tip of the Week. 

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Trading Tip: Beware of a New Year Whipsaw