Election trading strategies

Rather than looking at technical setups, price action and those forms of decision-making, I thought I would go through a step-by-step process for generating catalyst-based swing trade ideas.

Now this method might not be for everyone but I think the process will be interesting for all traders…

So let’s start.

Ok, so we have a general election coming up in the UK on 4th July and Labour are favourites to win a majority, and have been for a while. (Our catalyst.)

A new government always has an impact on certain sectors more than others, depending on the promises and ideas they plan to implement.

So, with that in mind, what trade ideas can we generate from different general election outcomes and potential headline news flow in the weeks following?

(And as I mentioned in a previous email, the UK election is a great ‘process dry run’ for the juicier US elections later this year, so even if you don’t trade UK stuff, it’s a good exercise.)

Alright, so the first step is to identify the sectors that have the most to lose or gain from a conservative or labour government.

We want a sector that preferably will win big under one party and lose big under the other.

Something like tobacco is no use for this method, both parties have pledged to stop more people smoking and vaping. No big price swings are expected.

I did some research on each party’s promises, and the big sectors likely to be affected are:

1. Housing
2. Energy
3. Defence
4. Rail

Defence – No good for us, as they both plan to boost defence spending.

Rail – Perhaps, but Labour’s plans to nationalise the rail service won’t happen overnight.

Housing?

That’s a good one to focus on.

Labour is making this one of the headline agendas, with plans to build more homes, and change the planning system.

From Labour’s website:

“Keir Starmer has pledged to get Britain building again – starting with one and a half million new homes across the country within five years of a Labour government.”

From localgovernmentlawyer.co.uk

“It also said Labour would introduce ‘planning passports’ for urban brownfield delivery, “a tough package of planning reform to fast track approvals and delivery of high density housing on urban brownfield sites”.

In addition, the party committed to introducing 300 new planning officers across the country “to improve public sector capacity to expedite planning decisions”.

That could mean a boost for

1. Homebuilders
2. Suppliers
3. Services to the property sector

Home builders might be too obvious…

But I like the idea of building supply companies benefiting from potentially more relaxed planning laws and a push to build more homes.

So let’s look at some companies:

1. Wickes – DIY and Trade improvement products
2. Kingfisher – They own B&Q which is like a UK Home Depot
3. Travis Perkins – Builders merchant and building supplies

These all trade on the London Stock Exchange and potentially could all be sensitive to housing legislation changes and planning rules relaxation.

WICKES