With the U.S. election looming, how can you as a trader best prepare for the outcome? Here are a few ideas to spark your preparation and planning:
- Be prepared for the results to not matter – If the Intrade numbers continue in their present vein, the election results will increasingly be priced into markets. Don’t necessarily expect markets to move in response to the results; markets are usually more forward looking than that. The Congressional results may be more important as a sign that Congress and the President will or won’t work constructively on the so-called “fiscal cliff”. Those signals, too, may precede the actual election results and could move markets.
- Don’t take your eye off the global ball – It is all too common for U.S.-based traders to become overly focused on U.S.-based market catalysts. With signs of economic unrest in Europe, ongoing Mideast tensions, and slowing growth in China, the global picture may be as or more important to market outcomes than the election.
- Don’t let your politics influence your trading – You may or may not like the candidates or any particular candidate; you may love or hate their policies or personalities. All of that is irrelevant to present-day demand and supply for currencies, commodities, equities, and fixed income instruments. It is all too common for us to allow our personal, political predilections to shape our view of the market.
- Focus on you – It’s not just election time; it’s end of year time. If you have been underperforming your goals and/or benchmarks, it’s time to step back and reassess what you can do differently in the year’s final quarter. Has your research fallen short? Have there been market influences that you’ve failed to adequately take into account? Have you had good ideas, but traded them poorly? Turn the first three quarters of the year into solid learning experiences, then turn those into concrete trading goals. In this business, you either get better or you better move on.
- History matters – Central banks are telling you that they don’t want deflation. They are becoming increasingly open-ended in their commitment to avoid it. Fighting the Fed has not been a winning strategy over the years. Election years have a tendency to be bullish for U.S. stocks—and we seem to be following that pattern so far this year. History doesn’t always repeat itself, but trading in ignorance of history can become expensive.
The election may or may not give you the political results you desire. Your job is to be prepared for multiple possible outcomes in Q4, including the ones that have nothing to do with election results and those that markets will anticipate going into 2013. That is most likely to give you the market returns you desire!