 12/18/2020 Are Year-End Trading 'Surprises' Actually Predictable? ✔️ Trading all comes down to supply and demand. Here's what traditionally drives both at the year's end… ✔️ How swing traders can anticipate potential price moves due to 'tax selling' in December.  2020: it's been a heck of a year, to say the least.
The market's been volatile. That means big price swings. In terms of trading, I've had the best year of my career.*
No, the market hasn't been normal. But there are still some common year-end stock market phenomena that swing traders should know about.
The end of the year is a unique time for trading — and for some new traders, the price moves might not make sense. It's all about supply and demand … and the different factors that affect them toward the end of the year.
What can traders expect at the end of the year? Let's dig in... Sponsored Ad  Tim Sykes put together something special to help you get ready for 2021.
What Really Moves the Market...
When you get down to it, supply and demand are the only forces that matter in the stock market.
Every transaction has a buyer and a seller. The balance of buyers and sellers is what determines supply and demand.
Supply is controlled by sellers. Sometimes sellers are getting out of the trade to cut their losses. Other times, it's because the price is so good they feel they must lock in profits.
Selling causes downward pressure on a stock. If sellers are aggressive, the supply can overwhelm the demand — and the price falls.
Demand is controlled by buyers. When more people start buying a stock, it reduces the supply. Shares available are suddenly in greater demand. If demand overwhelms the supply, the price will go up.
Now that you've got an understanding of the players, let's talk about how they affect end-of-year trading. The Santa Claus Rally
Traditionally, there's a rally in the stock market in December — some traders call it the 'Santa Claus rally.' From 1928 to 2019, the S&P 500's average December return is +1.3%.
There are a lot of factors driving this rally, including... Sponsored Ad "To Live the Trade From Home Lifestyle…" You need to throw out all the rules that small safe people live by every day...
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 Holiday Optimism
In general, people are more optimistic around the holidays than at other times of the year. The new year is approaching, and the promise of a new beginning tends to give people a sense of hope.
Speaking of retail, December is the biggest month of the year for most retailers. Big spending can give optimism to the market too. Investors are more likely to buy stocks when customer optimism is high.
Retail Traders Have More Money
A lot of part-time retail traders who have day jobs get a holiday bonus near the end of the year. Often, they immediately buy stocks with that bonus.
The Fund Manager Mark-up
This is a bit of a shady practice ... Nevertheless, it happens. Fund managers with large positions can influence a stock price. And when I say large, I mean large. Think millions of shares…
Wall Streeters Get Their Bonuses After the New Year
Everything until the end of the year counts for the pros.
So for them, it's worth buying a few extra shares to boost their annual numbers. This has a direct effect on their personal bonus.
That's a lot of buying. No wonder the market tends to rise in December. But with all this buying, you may be wondering … Is anyone selling? Tax Sellers
As the end of the year approaches, buyers tend to overwhelm the sellers.
But there are sellers that tend to show up at the end of every year, too.
Who are they? Traders who want a tax break.
Traders must pay taxes on the profits they make during the year. If you had a great year of trading, that's a good thing. But you'll have to pay taxes on your profits.
But for U.S. taxes, only realized gains and losses are considered at tax time.
If you've got losing positions sitting in your account, you might be able to reduce your tax bill by selling those positions for a loss.
Please know that I'm not offering you tax advice. Seek a licensed professional in your area for that.
But for some traders, this can be motivation to let go of losing positions. By selling a position and realizing the loss, it can potentially reduce overall profits — and therefore reduce the potential taxes due.
It works the other way too, though. If a trader is on the fence about selling a winning position, they might want to hold on until after the new year so that they wouldn't be taxed on those earnings until the following year.
Tax selling is a unique phenomenon that happens right near the end of the year. As a swing trader, you need to know about things like this — because ultimately, this selling action could affect stock prices. Sponsored Ad  If 2020 didn't go your way…
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End the Year on a High Note…
There are plenty of year-end traditions … Not just in terms of holidays, but in the stock market too.
At the end of every year, there's a flurry of buying and selling activity. Everyone's trying to benefit themselves — and it can affect supply and demand.
By understanding these common year-end activities, you can at least anticipate that there could be some crazy last-minute moves. You can't count on anything, but you can be very careful in plotting out your trading plans.
Of course, it's worth noting — 2020 has been far from normal in just about every way. So you should always trade with a plan, and have an exit strategy in place in case you're wrong.
Happy New Year,
Paul Scolardi Editor, Swing Trade Millionaires
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