Trading in December: What to do, what to avoid, and prepare for January

Seasonality, liquidity conditions, and professional positioning across assets

Introduction

December is one of the most misread months in markets. Traders often expect a clean “year-end rally” and end up forcing trades in an environment that frequently has thinner liquidity and uneven participation. In professional terms, December is less about maximizing trade count and more about protecting capital, tightening process discipline, and preparing for January, when participation typically normalizes.

This article breaks down what tends to be true in December across equities, FX, commodities, and crypto, what to do and avoid, and how to build a practical January plan.

1) What makes December different

Two verified realities shape December:

Liquidity often declines around year-end holidays, which can impact execution quality and amplify short-term moves. Research and market commentary repeatedly highlight reduced liquidity into year-end and holiday periods.

Holiday-thin trading is a recognized condition in equities, especially in holiday-shortened weeks.

Lower liquidity does not mean “easy trends.” It can mean:

• Wider effective transaction costs.
• More slippage around stops.
• Less reliable follow-through after breakouts.

The correct adjustment is usually selectivity and smaller risk, not more activity.

2) Santa Claus rally, what it is and what it is not

The “Santa Claus rally” is commonly defined as the last five trading days of December plus the first two trading days of January, a convention attributed to Yale Hirsch.

Two important clarifications:

• It is a tendency, not a rule. Even sources that cite historical averages emphasize it is not guaranteed.
• It applies most directly to US equities. It is not a universal law across FX, commodities, or crypto.

Professional takeaway: treat seasonality as a context filter, not a trade signal.

3) Equities in December (stocks and indices)

What tends to work

• Prioritize higher-timeframe trend alignment and reduce discretionary trades.
• If you trade breakouts, require strong confirmation (structure plus follow-through). Thin conditions can produce false breaks.
• Prefer highly liquid benchmarks (major indices, large caps) over illiquid single names.

What to avoid

• Forcing day trades when volume is visibly lighter.
• “Late-December breakout chasing” without confirmation. Thin markets can exaggerate moves and then mean-revert.

Institutional reality: many desks are not trying to “win December.” They are trying to avoid giving back Q4 gains in low-quality conditions.

4) FX in December (currencies)

Year-end dynamics matter in FX because liquidity can shift around reporting dates and holidays, and dealer behavior can change around quarter and year-end.

What tends to work

• Trade fewer pairs and prioritize majors where execution is typically best.
• Tighten your “permission set.” Only trade your A+ setups.
• Reduce size if you are trading around major risk events.

What to avoid

• Assuming normal spreads and fills during late-session or holiday windows.
• Treating every data point as tradable. In December, positioning and liquidity can dominate short windows.

5) Commodities in December

For commodities, it is safest and most accurate to avoid “one-size-fits-all” seasonality claims. Behavior varies by complex (energy, metals, agriculture) and by contract liquidity.

What you can rely on

• Holiday periods can reduce participation in many markets, which can change execution quality.
• Macro drivers still matter (rates, USD, growth expectations), but timing and liquidity can determine whether a move follows through.

Practical approach

• If you trade commodities, make participation conditional on liquidity and volatility being “tradable” for your model.
• Reduce risk around holiday sessions and focus on clean levels.

6) Crypto in December

Crypto trades 24/7, but that does not guarantee institutional-quality liquidity every day of December. Liquidity can fragment across venues and leverage can amplify moves.

What tends to work

• Reduce leverage and size. Treat sudden volatility as a risk event first.
• Focus on high-liquidity assets (BTC, ETH) rather than illiquid altcoins if you are active.
• Demand confirmation. Thin conditions can create sharp moves that retrace quickly.

What to avoid

• Oversizing into holiday weekends.
• Confusing volatility with edge.

7) What to do in December: A professional checklist

A. Adjust expectations

• Your edge is not measured by activity. It is measured by decision quality.

B. Tighten risk rules

• Reduce risk per trade.
• Set a maximum daily loss and stop trading when reached.
• Reduce the number of trades you allow per day.

C. Require higher-quality confirmation

• Only trade at key levels.
• Wait for clear structure and follow-through.

D. Treat illiquid windows as “no trade” by default

• Especially during holiday-shortened sessions and late-year low participation periods.

8) How to prep for January

January often brings renewed participation and clearer price discovery as desks return. The best way to benefit is to treat late December as a planning window.

January prep steps

1. Review your last 30 trades and categorize errors:

• setup quality errors.
• sizing errors.
• emotional errors.

2. Identify your best-performing market and session combination.

3. Define January rules in writing:

• which assets you trade.
• which sessions you trade.
• max trades per day.
• max loss per day/week.

4. Pre-map levels on higher timeframes and write scenarios:

• continuation scenario.
• reversal scenario.
• “no-trade” scenario.

Final thoughts

December can offer opportunity, but it often comes with execution risk and lower-quality market conditions around holidays and year-end liquidity shifts.

Professional traders adapt by trading less, filtering harder, and focusing on preparation. If you treat December as a month to protect capital and refine process, you give yourself a meaningful advantage when January participation returns.