As traders we often think that if there is a market open….we have to be trading it.

That’s a noble idea in the abstract, but it really doesn’t make much sense in the real world, especially at this time of the year.

The period between Christmas and New Year’s is generally not the best time to be in the market because there are a number of different factors that distort the trading action, the most important of which is that the major players are on vacation.

If you remember the classic holiday TV show “Rudolph the Red-Nosed Reindeer,” there is a scene where Rudolph, Hermey—the elf that wanted to be a dentist, and Yukon Cornelius stumble across “The Island of Misfit Toys,” a place where all the unwanted playthings, with their various flaws, go to live.

Take a mental picture of those dejected, spurned, and castoff toys, and then superimpose that image onto the order desks of the major trading entities, and you pretty much get the picture. These rejects have little if any authority to do any real trading, which is one of the reasons volume is so light during this period.

So instead of working in less than optimal conditions, this is a good time to review your trading from 2012 and see where you have room for improvement.

Most brokers allow you to download your trade data which you can then open up in a spreadsheet program like Excel. This will allow you to sort your trades and analyze them in various different ways.

First take a look at your most profitable trades and try to identify what the common themes are among each of them.

Are you more profitable with trades early in the sessions? What equity classes did you do the best in? Are your swing trades better than your day trades? Really drill down and try to understand on a granular level what criterion was present in most of your winning trades. And then do the same thing for your losing trades.

As simple as this exercise sounds, I know experienced traders, people who have traded for decades, that do this religiously during the Christmas/New Year’s break in order to weed out any bad habits they may have picked up, or slipped back into, during the previous year. The process acts like a “palate cleanser” and sets you up with the right frame of mind to begin the year trading profitably from the start.

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