January is known by many as a month of reckoning; the time we address the excess spending and indulgences that took part during December when festivities and the “Christmas Spirit” convince us to spend more than we can afford.
Why do we say this? Well, here’s why:
January is widely known as the month of sales in some parts of the World because retailers try to sell off their leftover stock from the holiday season. However, that doesn’t happen in the forex market, and this is where deciding to learn to trade comes in handy during the holidays.
The January Effect & Forex
Fun fact; the stock market gets hit by something called the “January effect”, where prices see a sudden rise. That’s because people sell off their assets in December so they can close the year claiming something like a capital loss to reduce taxes.
There are two sides of the January effect, and they are:
- That stock values increase during January, which makes it more advantageous to buy at the end of the year and sell at the end of the first month.
- That annual prices follow suit with the January price change, which makes it favourable to wait until prices “settle” at the month’s end and then proceeding to buy if prices rise or sell if prices fall.
Since the January effect impacts the value of the USD, it has consequences that anyone wishing to learn how to trade should know about when it comes to forex trading, since the USD is the workhorse of the market.
If we examine the broad nominal index since 1974, we’ll notice that January saw an average positive change of 0.48% in the index, with 60% of these January months showing a positive change meaning that, yes, the USD tends to rise during January.
The January effect translates to the World of forex, and anyone who took it upon themselves to use December to learn how to trade will be able to take advantage of the price surge this January.
With the USD rising in value, selling the currency would lead to a noticeable profit over prices in the previous month, and costs of other currencies should be more accessible, opening up the possibility of investing into them at lower rates.
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