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How does the market give gifts? Pre-New Year rallies

The Market as a Gift: Year-End Rallies in Forex

Everyone loves gifts. It’s nice to know that someone remembers, appreciates, and is willing to share something meaningful with you. For traders, the market can be that "gift," especially when it presents surprises in the form of stable trends. Year-end rallies are one such moment when the market becomes more predictable and profitable. Let’s explore how to use this period to boost your earnings.

What Are Year-End Rallies?

Year-end rallies refer to the consistent rise (or fall) of the U.S. stock market observed during the last two months of the year. These movements directly depend on the economic performance throughout the year:

  1. Annual growth: If the market has been growing during the year, it’s highly likely that the trend will continue into November and December, resulting in a "rally" — a sustained upward movement in prices.
  2. Annual decline: Conversely, if the year has been tough, the market tends to show a decline at the end of the year.

This phenomenon can be anticipated by analyzing stock indices, such as the S&P 500, which professional traders call the "barometer" of the U.S. economy.

Why Is the S&P 500 a Key Indicator?

The S&P 500 index tracks the performance of 500 of the largest U.S. companies, offering an objective view of the economy’s health. Its cyclical movements closely mirror the rises and falls of the American market.

  • If the S&P 500 rises before November, it signals that the market will likely experience an upswing by the end of the year.
  • If the S&P 500 falls, you can expect a downward trend through December.

Reaching a historical high in the index is an excellent indicator of market sentiment. For instance, in 2013, a record high in the S&P 500 preceded a strong two-month upward rally.

How to Prepare for a Year-End Rally

  1. Monitor the S&P 500:

    • Observe the index’s performance until the beginning of November.
    • If the index shows growth, prepare to open long positions.
    • If the index declines, consider short positions.

  2. Open trades with correlation:

    • Currency pairs like USD/JPY or GBP/USD often correlate with the overall U.S. market performance.
    • Ensure your trade aligns with the trend direction.

  3. Use technical analysis:

    • Identify support and resistance levels.
    • Focus on medium-term trends to determine entry and exit points.

  4. Work with stable assets:

    • Besides currency pairs, consider indices, commodities (like gold and oil), or stocks that benefit from a rising market.

Real Example: Success in a Year-End Rally

Last year, a trader capitalized on the S&P 500 rally by opening trades on the USD/JPY currency pair in November. The result? In just two months, they earned 1,180 pips, translating to a substantial profit.

Here’s how it was achieved:

  • Before November, the trader analyzed the S&P 500’s performance. The index reached a historical high, signaling growth.
  • Long positions were opened in November and held until the end of December.
  • Thanks to the steady trend, the trade delivered consistent returns.

What If the Market Falls?

Not all year-end rallies are associated with growth. During years of economic downturn, the market may exhibit a downward trend. However, this doesn’t mean traders lack opportunities:

  • Trade the decline: Open short positions, particularly in instruments sensitive to economic changes, such as stocks or commodities.
  • Hedge your risks: Use safe-haven assets like gold, which often rise during periods of economic uncertainty.
  • Be prepared for corrections: Even in a falling market, pullbacks occur and can be leveraged for short-term trading.

Why Are Year-End Rallies Important for Traders?

  1. Ease of analysis: Trends associated with rallies are easy to predict using the S&P 500 index.
  2. Long-term movements: Rallies typically last two months, allowing traders to plan their trades in advance.
  3. High profitability: Consistent trends provide opportunities for significant earnings with minimal risk.

Conclusion

Year-end rallies are a unique period when the market becomes more predictable, allowing traders to capitalize on stable trends. Whether the market is rising or falling, the key is to assess the situation correctly and apply appropriate strategies.

 

Keep an eye on the S&P 500 index, plan your trades, and turn the year-end season into a source of steady profits. After all, when the market gives gifts, it’s essential not to miss the moment!