Prepare for Election Night:
Your Trading Game Plan
Key Points for Building Your Election Night Trading Strategy
Ok – so this is the first in the US Election email series.
I’m going to take some time to look at trade ideas, potential movers, setups etc.
But before we go there, let’s get prepared.
As Abraham Lincoln said – “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”
We need to sharpen our axe…
In other words, take some time to plan as much as possible.
Make no mistake, the election is going to offer some incredible trading opportunities, but we can’t just expect to turn up and make profitable trades.
To give ourselves the best possible chance of success we need to be prepared.
So, let’s look at the key points together…
PLANNING
No one knows the outcome, but one thing is for certain – volatility.
And we all know that means increased risk.
Not just from the wider spreads and lower liquidity. (Yes, even you EURUSD traders are going to see wider spreads when the swing state results start coming through.)
You should decide on a few key points:
- Do you want to trade the election night? Or just watch?
- Are you going to restrict yourself to certain trades and plays?
- Are you going to let the dust settle first and then scan for trade?
In other words, are you even opening the door to election trading?
For some that answer’s a “no” – they prefer to let the noise calm down and then trade as usual.
For others, the answer is a “hell yeah!” – they want to get stuck in and attempt to capture some of the expected wild swings.
There’s no right or wrong here… but commit to one.
The last thing you want to be doing is telling yourself you won’t trade the results flow and then get sucked into something you hadn’t planned to take.
Once you’ve made your decision, the next question to ask “How much am I prepared to risk?”
RISK
No one can answer this for you.
And before you decide… consider your strengths and weaknesses as a trader.
If you’re susceptible to rule-breaking and discipline issues, just know that volatile markets fuelled by news are going to amplify those issues… do you really want to put yourself in a vulnerable position?
Better to wait it out, and act calmly in the days and weeks after.
There will be a load of opportunities.
But, perhaps one of your strengths is spotting short-term sentiment shifts quickly, maybe you are excellent and squeezing the most juice out of those intraday swings.
In which case the 5th is going to be an opportunity that plays to your strengths.
Don’t be a hero here, look at it objectively.
At the end of November, your bank manager doesn’t ask if you made that money on election night!
A good month is a good month, whether that’s election night scalping or one nice runner in the following week.
So, decide on your risk capital allowance. What’s your total election loss limit?
That might be different to how you usually do it, but I find that having a loss limit set that covers all election trades allows for slippage, sizing adjustments and a bit more flexibility.
It also puts your mind at peace… you set a number you are ‘comfortable’ with losing. As long as you stick to that loss limit, you are good.
(This is all very personal, you decide how you allocate risk capital, but it’s an approach I like.)
Ok, now the risk decision has been made, let’s start planning…
SLEEP, REST, AND FOCUS
This is probably not something you would normally consider, but as someone who has traded through multiple elections, trust me, it’s worth boxing off.
Results are expected to be released throughout the evening and night (depending on your time zone). This means if you plan to trade, you may well be trading tired…
Most of us can do it for one night, but a bit of planning can help make life easier.
What you don’t want is to be up all night waiting for some news, only to be super fatigued the next day when the real moves are happening.
So here’s a suggestion. (And I appreciate not everyone trades full time, so adjust to suit.)
Make a decision to either stay up and trade OR sleep and attack the next day.
Now, it’s not always easy to know beforehand which is best right?
It’s going to depend on many factors, are results close, are we seeing some swing states with early announcements?
Whilst it might be tempting to stay up all night watching the markets, just know you won’t be on form and ready for the bell the next day.
So at some point, you might make the decision to call it a night and be fresh for the next day…
Or, you may decide there’s a plentiful opportunity and you are going to stay at the station.
Up to you.
Oh, and one more thing…
If you feel like you have a great trade, the stop is in place and this thing could run. Going to bed might be the best thing for it…
EXPECTATIONS VS REALITY
Over the next few days, you’re going to hear a lot of this from the media:
“Trump is good for stocks – stocks will rally”
“Harris is good for China – China will rally”
“A split house is good for the economy – the dollar will rally”
Or whatever…
And these are ‘correct’ – in the sense that it’s the expected response.
But in my two decades playing this game, I know the expected response doesn’t always play out…
Often it does, and if so, great.
But many times the opposite will happen and then the news outlets will flip the narrative and give a reason why.
Usually with the word “Despite” – “Despite the expectation of corporation tax cuts, stocks fell sharply on <insert potential reason>”
So, just know, that we can prepare a game plan, and our thesis can be solid.
- X will go up if Trump gets a clean sweep
- Y will rally if Harris wins
All based on logic.
But we don’t really know how markets will react, it’s not always as simple as bullish or bearish.
There’s more nuance.
And sometimes the unexpected price response can actually be the best trade going.
People scratching their heads, “Logically this shouldn’t be happening, I don’t get it…”
So remember this
“PRICE RULES ALL”
No matter what the experts think, or what we think, the only thing that matters is what price does.
Don’t fight it, don’t try and outsmart it, take the expectations combined with the price response and see the real story.
Over the next few days, I’m going to share ideas, potential movers, and possible game plans.
But on the day I’ll be guided by price response.
Yes, the planning is going to help massively because maybe the ‘obvious’ trade is the best.
There’s nothing wrong with spotting momentum, timing your entry, and taking a piece of the move.
But should the price not do what everyone expects, I’m going to reassess, take in the new information (price response), and position accordingly.
Alright, that’s enough for one day!
Back again tomorrow, where we’ll take a look at prior elections and see if we can get any clues from there.