Another short 4 day week ahead of us here in the US. The calender is pretty empty.
At this time of the year, my advice continues to be, go find something else to do besides trying to trade in these holiday markets.

Here in Chicago, we are right on Lake Michigan. On countless days, the radio advises “small craft warning” due to choppy, 3 foot plus waves. Once about ten years ago, I found myself on a friend’s boat during one of those warnings. Lake Michigan is no place to be in a 20 foot sailboat when the waves are 3 and 4 feet. Its like crawling inside a washing machine, and setting it to “spin”…

If, however, you must trade, my advice is to trade for the first half hour of the day. There may be some business for the first fifteen minutes or so, but after that, the market will most likely chopp around with little rhyme or reason.

Things I would watch out for, are any more Geo-political gyrations. It seems, for what ever reason, the US is once again the target of groups or lone individuals intent on causing havoc or at least threatening to cause havoc.

That risk, which has been with us as traders since Sept 11, 2001 has been shouldered by anyone who took a long position in any stock index at any time. I can remember trading in the Dow futures pit in the weeks and months after that attack. I never left the pit with a long position, without having a very tight stop. And I also realized that if there were to be another incident, the first drop would most likely be at least 200 or 300 points. In effect being long the Dow or S&P had an inherent, if very small risk every time one put on that position. Ironically, being short had the same and almost equal risk, because at the time, Mr. Greenspan had done a surprise rate cut, which had resulted in the markets exploding higher. If one had been short when that surprise rate cut was announced, it was a case where you immediately lost 2500 for every contract you were short. Not a nice situation to fine yourself in.

Trading is inherently a risk/reward operation. And no one has a crystal ball. So just remember every time you put on a position, the absolute worst case scenario, if trading the Dow index, is at least 200 point air pocket if either an unexpected bullish item comes out, or vice versa, if an unexpected bearish item flashes across the news wire.

I think its a good idea for a trader to consider, in effect, a Chernobyl type risk. It infinitesimal, yes, but certain news items can create immediate short term havoc in the markets. Any unexpected Geo-political catastrophe can either line your profits with a quick unexpected wind-fall (if you happen to be the right way) or it can evacuate mass quantities of trading capital (if you are caught the wrong way).

If, you find yourself in that situation, you have to be able to pull the trigger one way or another to preserve your trading capital. If the market was to move to such a severe way against you, maybe even to the point where the futures were locked limit move against you, you have to be able to at least go into the options market to get yourself hedged with a synthetic position.
Every trader should know in advance either 1) how to do a synthetic option position or 2) have a trusted broker who can do it for you.

I personally had to use synthetics 4 or 5 trading days in 2007 and 2008 alone when we had some limit moves in the soybeans. The market was limit bid in the futures,but the synthetics were 10 or 15 cents higher. In effect, if you were stuck short in the futures market, for 500 to 750 dollars a contract, you could have covered your loss via a synthetic long in the futures market. Painful? absolutely, but considering the limits were 50 cents, a 10 to 15 cent beating, was more attractive than waiting and hoping for a break, when there was a very real possibility of having another 50 cent move in your face the next trading day. 50 cents on a one lot is 2500 bucks. So having a relatively small position of 10 contracts could have cost you 25K, if you were wrong to begin with and the compounded it by getting stubborn and not taking your loss.

That being said, just remember, there will be another 240 plus trading days in 2010. Do you really need to be trading at this time of the year? 4 extra trading days with expanded risk are 4 days you should probably avoid.

That being said, I will be doing at least 2 updates each day this week.

As far as I am concerned, you can watch, but unless you have an extremely strong trading signal, all in all, I would keep your trading platform shut down for this week.