Thanks for your thoughts, Paul.

Quote Originally Posted by grems8544 View Post
Pulling down my handy-dandy Stock Trader's Almanac, November, December, and January are the year's best three-month span using the data from January 1950 to April 2009 (I'm using my 2010 edition since I can't seem to find my 2011 copy). To whit: average gains of the S&P are 1.5%, 1.6%, and 1.1% for the three months respectively. For the R2K, since 1971, we have 1.8%, 2.6%, and 1.9% respectively. If you want to be defensive, e.g., R1K, then you're looking at 1.7%, 1.6%, and 1.2% respectively. The NAS is along the same lines: 1.6%, 1.9%, and 3.0% respectively.
Long-only traders (especially if trading on a longer timeframe than a single day) as well as investors tend to do particularly well in Dec for obvious reasons (outlined by you). Long/short traders may be at a disadvantage, however. For instance, if a long/short strategy does not adequately take into account market seasonality and market volume levels in its approach, then abnormally large and/or abnormally frequent losses in the strategy developing during a holiday period, especially on the short side, would not be surprising. Short trades that would be avoided by a more sophisticated (but not necessarily ultimately better) strategy can end up being taken by a less sophisticated (but not necessarily ultimately worse) strategy, during a holiday period.

Nov and Jan both normally have a reasonable amount of volume and shouldn't be considered holiday periods, in my opinion.

Taking profits quickly is a valid option, but then the stop used on trades would also need to be tighter than normal to compensate for this approach, I would think. Otherwise one losing trade in Dec could wipe out a number of other winning trades during the same month but that were only small winners.