Trading The US Elections From Australia

Front row seats to the opportunity down under

The best trades can be mentally game-planned and structured well before the market opens.

I was reminded of a tweet by a colleague that perfectly illustrates this point:

“Imagine you are asked to solve a difficult puzzle in a time-sensitive environment, but you could ask for 1 freebie. What would you choose?

A. More time.

B. Internet access.

C. Ask a prior puzzle solver.

D. A hint.

Spoiler alert: the puzzle is discretionary trading and you can actually get all 4 options by pre-planning or wargaming various scenarios. The goal is to turn decision-making under extreme uncertainty to mindlessly following carefully pre-planned steps from a fire drill.”

That mindset is what defines first-rate performers. You can read further about this post here.

And so it was with trading the US election last week. Asian-based traders were blessed with a front-row seat as the results started to trickle in from 10 am AEDT onwards. The outcome was by no means a certainty as reflected by the shifting odds at the bookmakers and the feedback from the polls. More importantly, different outcomes were set to have meaningful implications for the market as the two candidates had very conflicting policies.

The ones who were most prepared put themselves in a position to capitalise. You just had to sit down and do the work beforehand.

This post is broken down into 3 main parts to summarise this great trading event:

• What did I gameplan?

• How did I execute?

• Where do I need to improve?

Hopefully, there is something for every trader here no matter your jurisdiction or timeframe.

The Pre-open Planning

Here is an excerpt of what I wrote pre-open in my Evernote to game plan.

Overview:

• The most important lesson from my prior election day and Brexit experiences is to wait until the market tips its hand. Trade what I see, not what I want to see.

• Price action can be fragile and whippy until later in the afternoon. Do NOT drain mental and physical capital in the first half of the day.

• Markets like clarity. Markets hate uncertainty. Trade those two sides of the pendulum.

Execution Options:

• Keep it simple. Australia will follow during this time zone. Overnight is a different game.

• Trump sweep = Buy X basket. The top names for this are APX, BSL, BXB, JHX, MQG, TWE, ZIP, SQ2, and WOR or WDS. Crypto. Risk on assets.

• Harris sweep = Sell Y basket. Flip the Trump names.

• Tight/Marginal race = unclear, let the market tip its hand. Likely some market softness.

• Monitor lead indicators such as ES, $DJT, DOGE, Poly, Bond Yields, and USD. News outlets and maps setup.

Background:

• Markets have been pricing in a Trump win. However, the underlying stocks and sectors are not too extended on the Daily chart, with most assets pulling back recently. The current market trend is bullish and supportive. The structure is not overextended for a big sell-the-news climax event.

• Implications of a Trump win are Corporate tax cuts, US growth, Deregulation, and Tariffs. The perception is he is good for markets and US-based companies. Think 2016 scenario and proxies. We have the luxury of that prior experience.

• Converse to this, given Trump is favourite, a Harris win could lead to a sell-off and unwind of these same themes.

Trade plan:

• Do nothing early. It takes time for the real data to come through. There are often head fakes with risk assets before the true vote is in. There is always plenty of time IF a clear winner comes ahead.

• In past cycles, markets moved around 1 pm to 2 pm Australian time.

• My favoured scenario for the highest EV is Trump Sweep or Harris Sweep. I don’t have a strong view on a tight race. Markets could be weak in this scenario but not a strong move

• Risk needs to be a strategy stop. Given this is a rare event it needs $25k+. Risk more on a stronger Trump win.

• 10 names, basket approach, stop to vwap/open levels. $3.5m or $25k. Will have to be more flexible here as the day evolves.

• Heed the price action IF something unexpected happens e.g. Sweep but the market sells off sharply. This tells me the market is already there.

• Basket in early trade to plan size and risk to a theoretical stop:

The Execution

P/L: +$25k. Executed my game plan seamlessly. Didn't get a huge result but put myself in a great position to capitalise.

Overview:

• Proud of this one today despite not getting a major headline result. The planning and teamwork in the office throughout the day were superb. Hat tip to the guys for such detailed research and game planning. This is all we can do.

• I leaned on my previous Election and Brexit experiences today. I game-planned scenarios thoroughly as per the template pre-open. I knew what I wanted to see and when I wanted to see it. I got to my full-size basket as the result started becoming clear and as the underlying stocks started to break out post 1 pm. Trump was so far ahead and Poly de-risked the trade. ES spiked and risk on moved. I joined.

• The only clear error was not pressing harder in BSL and this was a total bias that held me back (the recent earnings downgrade). I also did not have QBE in my basket planned despite clear US beneficiary + rate play.

• The underlying moves did not move as clean as hoped. BSL, MQG, SQ2, and QBE were the standouts whilst other names were a bit knee jerk e.g. BXB, JHX, and ZIP. Unfortunately, JHX was looking great but then staged a total reversal on me. This undid a lot of the headline P/L but totally out of my control.

• I held core positions in most of the names through the afternoon as per the strategy rules. There was a clear pause and possible trend reversal at around 2 pm. Some names consolidated e.g. BSL whilst others had a full trend reversal e.g. JHX. The clear improvement for me was to spot those names holding sideways and add that breakout for a trend to close.

• As the afternoon rolled on the strength in the USD led to a rout in our major Miners. I scalped FMG and EVN short here as I just wanted to focus on my long basket.

• I put on a small overnight basket in planned names with the correct risk stop. However, I was small size with this given I did not want a repeat of my 2016 experience where I went home short markets only to see a full reversal. In the back of my mind, I was concerned about a sell-the-news event despite my prior game planning.