Everyone loves Christmas gifts! And what could be better for a crypto trader than growing assets prices and stocks in his portfolio as a present for holidays? Santa Claus heard the investor's wishes and brought them to reality. Since the beginning of the month, we have been hearing about the Christmas Rally (or Santa Claus Rally) on the markets. Seems like all traders are eagerly waiting for it to come. But what is it exactly?
The Crypto Joy
The Santa Claus Rally is an event on the stock and cryptocurrency market when price on assets rise during the winter holidays (last five trading days of December and the first two days of January). This concept is familiar to many investors, brokers and traders. The rise on markets in winter is associated with good mood, tax cuts and bonuses that might be partially invested in assets, which is why their price may grow. There is often a psychological effect as well – the Santa Claus Rally phenomenon is well known, so investors generally expect to see it every year.
Do you believe in Santa Claus Rally or think this is just a pretty Christmas fairytale? Well, let’s do a little research to find out if it is a real deal. In order to determine how big the impact of the Christmas and New Year holidays is on investor positions, we need to take a look at a similar period of past bull markets.
For example, in the 2017/2018 BTC price chart, we can see a big price rise which started on the 27 of December.
Source: https://www.coindesk.com/embedded-chart/dk9prtzDrMbDf
An interesting, but very revealing move on the Bitcoin charts for 2018/2019. As we can see, on Christmas the price went up.
Source: https://www.coindesk.com/embedded-chart/GMhQJHmbmHLCg
The situation was similar in 2020, when a powerful bull rally originated precisely during the Christmas holidays and developed in the following year.
Source: https://www.coindesk.com/embedded-chart/fTjDt699mHrnz
Santa also came in December of 2020:
Source: https://www.coindesk.com/embedded-chart/Q9Hr9KkccpDBQ
Seems like Santa Claus Rally actually exists or maybe its all is just a coincidence. Nevertheless it’s important to remember that Crypto World is a risky place.
Is Santa Claus Rally dangerous?
During the holidays, the volatility of any market rises, and given that cryptocurrencies are more volatile than other financial instruments by themselves, trading becomes many times more difficult. Always keep it in mind. On Christmas holidays you might pause on trading, take a rest and enjoy the pre-holiday bustle, or carefully revise the risk and money management rules in order to avoid additional losses.
Basically, the trading strategy for Santa's Rally is simple, buy before Christmas and sell in early January. That’s its great advantage – it’s simple. However this strategy has some flaws:
- The signal comes very rarely, only once a year, and the position holding time is limited to one week. The rest of the time it just does not work.
- It’s hard to choose a good entry point.
- Statistics from the past do not guarantee the future.
Also, if you're really going to buy stocks ahead of Santa's rally, you might consider placing protective stops – it makes things a bit more difficult but safer.
What to ask Santa for Christmas?
SimpleSwap wishes crypto traders to be more rational in decision-making: think with your own head and be patient. These qualities are necessary for everyone who is on the market. And of course we wish investors to have good returns. Enter the New Year with a warm heart, a cold head, and with the understanding that the crypto market is unpredictable, so it’s impossible to be prepared for everything. What would you ask Santa for? Let us know in the comments!
You might like our other articles about crypto. Read about NFTs on Instagram and BNB updates in our blog.
