What Did Futures Traders Learn From the US Election?

US election

Whilst it is now a week since the US election, this is not an event that should be quickly forgotten or consigned to personal record books as a good or bad day. It was, in fact, an extremely good day for Axia Traders who performed well trading the election through the night. The most important thing now is to ask what we have learnt from the experience – doing the work now will aid performance in four years time, whilst at the same time building on the current narrative in the aftermath of the election.

The Best Futures Traders Take Time to Debrief

The US presidential election was a one off event to be forgotten for 4 years, so why bother debriefing it? Correct. There is not going to be the same event again for a while. But, the work done now in debriefing and learning from the US election should be done, as with every debrief, as a way of paying forward performance – some of the things picked up from the US election may help sooner than you expect – you just don’t know which of those things they are or when they will help, butt you’ll be grateful when they do. I remember taking a trade at the NYSE open, long the S&P 500 futures after the 2016 US election because the pattern of movement overnight as Trump was voted in was almost almost identical to the move on the Brexit referendum night: S+P drop to limit down overnight, grind back up during the European session as the news was fully digested and then bid up after a small drop as the NYSE for an entry back through the opening price for ~20 handle winner.

So what did we learn from the election of the 46th President of the United States of America?

Not Every US Election Trades Like 2016

Traders expecting a binary event like 2016 were sorely disappointed, back then Trump was seen as ‘bad’ (mainly based on uncertainty) – so an easy sell in S&P 500 futures, which traded to limit down on the night (see below). Now, with him in power, the uncertainty had diminished and whilst Biden was the markets’ preferred choice there was still the the issue, at least for stock markets, of the increase in stimulus being countered by increases in taxes. This created a more nuanced trading environment, focusing much more on flow and the ability of the market to continue or reverse a move as more states were won.

2016 US election
E-mini S&P 500 futures trade to limit down during 2016 US election

Flow Based US Election Trades

The best performances on our London Trading Floor came on a flow based move back through the range in the E-Mini S&P 500 which was counter the conventional wisdom of Trump being bad: A big lesson from the 2016 election was to watch the betting markets rather than try to interpret every twist and turn as different states reported. What they started to show was a shift in odds towards Donald Trump winning, which initial caused a drop however as continuation was not forthcoming an unwind move back up ensued – this was a purely flow driven move, not based on a specific state being won or necessarily the odds themselves. Key Takeaway: if a market should do something and can’t, the counter directional move is often clean and relatively quick and positions exit. This move is reviewed below.

US Election Debrief

US Election Trading Opportunities The Next Day

For those wanting to trade the result of each state as their election trading strategy, the best opportunities came the day after, with many of the key swing states still having votes counted the US Election then hinge on these few remaining results making for much clearer trades – for examples Biden wins a swing state: buy, Trump wins: sell. These opportunities are also reviewed above, the most important, which set the tone for the S&P rally for the rest of the day was Biden in Michigan. Something that should always be considered is opportunity cost – many traders missed this move after staying up all night. A question for 4 years time, particularly if some of the similarities of postal votes and delayed counting as well as an even less binary decision is on the cards could be whether it is worth waiting until the final swing states report and trading the results of those?

Remember a debrief should never simply be a re cap of past event but should be instructive in how you will act in future. This a hallmark of many of the best futures traders.


What do you think?

Written by Richard Bailey

Breakout Energy Change Trade

US Presidential Election 2020 Trading Debrief