If you know me, you know I love Tesla Inc. (NASDAQ: TSLA).
And I’m not a fair-weather friend of this stock…I’ve been a long-term bull and have held a TSLA position for years.
It’s a quality company with good fundamentals and a great business model. I’m a true believer.
But yes, I’ve been raving a lot about it recently, especially since the election.
I’ve told you the other reasons for a TSLA stock boost…
But there’s another one, which I recently presented to my StocksToTrade Advisory members:
A Trump White House probably means no more EV tax credits, which is bad for the competition but great for Tesla.
Why? Because it kills most of the demand for those other EV brands.
And people who are buying Teslas aren’t going away…
No one who’s buying a Tesla cares about a tax credit. They’re buying a Tesla auto because it’s a superior product.
That’s why TSLA is one of my favorite plays for 2025.
And it’s an awesome swing trade for the December run-up into the new year when we’ll probably see the January Effect.
If you’ve been around the market long enough, you’ve probably heard about the January Effect.
But to fully understand it, you need to rewind the calendar to December.
December often sees a wave of price drops across the market, triggered by a mix of year-end activities like investors selling off positions to offset their capital gains for tax purposes.
Then comes January, and with it, a bounce-back effect where stock prices often climb again.
Table of Contents
What Causes the January Effect?
To understand why prices tend to drop in December and rise in January, let’s look at a couple of key theories:
Tax-Loss Selling:
Traders and investors sell off losing positions in December to claim capital losses on their taxes. They reinvest that capital once the new year begins, driving prices back up in January.
However, note that some analysts have found the January Effect isn’t what it used to be. As more investors use tax-sheltered retirement plans, there’s less of a need to sell positions for tax purposes at the end of December.
Window Dressing:
Mutual fund managers often like to “pretty up” their portfolios at the end of the year by selling underperforming stocks.
All of this activity can contribute to the overall market mood, though it tends to be more noticeable in large-cap stocks.
How to Trade the January Effect
Here’s the best way to position yourself to capitalize on the January effect:
Look at Small-Cap Stocks:
The January Effect is most pronounced in small-cap stocks, partly because they’re less liquid and more susceptible to sharp price moves.
Historically, small caps have outperformed in January, especially in the middle of the month.
Have a Risk Management Strategy:
Trading success during the January Effect—or any time—requires a solid trading strategy.
Start by tracking your setups in a trading journal. Over time, this will help you refine your approach, identify what works, and minimize risk.
Do you have a trading journal? If not, watch my video to see what you need to create one.
And one of my number one rules for risk management is to always set a stop-loss level before you enter trade.
As with any trading strategy, having a clear plan will also help you avoid impulsive trades and stick to your edge.
Define Your Entry and Exit Points:
Before jumping in, research the stock’s recent performance, check technical support and resistance levels, and review fundamental data.
Equally important is knowing when to get out…
Define your profit targets, and have a clear plan for cutting losses if the trade goes against you. Again, always set a stop-loss.
Use Stock Screeners and Other Tools to Find Opportunities:
A powerful stock screener is a trader’s best friend, especially during the January Effect.
Use it to filter for stocks with strong potential based on criteria like volume, price action, and news catalysts.
And the most basic thing every successful trader must have, for any strategy, is a great trading platform.
StocksToTrade is my number one choice and I use it every day.
It features everything you need to do the things I described above: stock screening, charting, technical indicators, research data, and more. It also has a selection of add-on alerts services, so you can stay ahead of the curve.
Grab your 14-day StocksToTrade trial today — it’s only $7!
My Final Thoughts…
The January Effect is a fascinating market phenomenon that can offer traders seasonal opportunities.
But let’s be clear: it’s not a guarantee. Like any trading strategy, success depends on preparation, discipline, and execution.
That being said, I think December through January is going to be a great time for swing trading stocks like TSLA.
IRIS, the AI bot I helped create, was designed with swing trading in mind.
Subscribers to the IRIS program get weekly analyst reports, training webinars, and best of all, access to the IRIS system itself.
The tool operates much like ChatGPT to produce screeners, trading plans, and more.
By the way, if TSLA shares are out of your budget, as it is for many people, options are a great way to get into the price action without trading the actual stock.
Read my blog post to learn more about options if you’re unfamiliar or need a refresher.
And IRIS is great for options too!
Though it was initially built for swing trading, the tool has evolved to include options training, alerts, trade ideas and more!
Watch the presentation below to see if IRIS is right for you…
Master your swing trading strategy with our AI-driven tool today!
Have a weekend, everyone. See you back here on Monday.
Tim Bohen
Lead Trainer, StocksToTrade