Every active trader looks for a rise in market volatility for potential opportunities.
That’s why the 2020 US election is one of the most anticipated trading events of the year. And with less than a week to go, pro traders are preparing in different ways. Technical traders are watching price charts to predict potential market movements, fundamental traders are tracking data points to determine the strength of a particular currency. Whichever way you choose to trade the election, it’s a time for all traders to size up their strategies and risk management tools to make sure they are best positioned to benefit from the volatility.
“There may be a lot that is uncertain about the 2020 elections,” says Tomasz Wisniewski, Axiory Intelligence’s newly appointed CEO. “But one thing is absolutely certain, and that is market volatility will continue to rise. Therefore, our trading strategies, and money management approach, must be well-adapted to all levels of market volatility.”
According to Wisniewski traders need to review their existing positions and make sure they are not too exposed should sudden large adverse market movements negatively impact on the portfolio of trades, thereby creating a problem on the amount of available margin in the trading account.
Anything can happen, and that keeps volatility high in the markets leading up to the election. With big movements on the horizon for election-day trading, volatility will continue to pick up during the election.
“Liquidity might also be thin around election dates, and risk will increase requiring larger stops. Traders need to be strict and consistent with their risk management strategy during this time .”
On the liquidity side, top brokers like Axiory are in constant contact with their tier-1 liquidity providers to evaluate the market depth and level of margins. “Our analyst teams constantly check market conditions, and report any changes in the market’s risk levels to our risk management teams.” Pro-traders will review and revise their existing risk levels, strategies, and positions to prepare to leverage election volatility.
The most important thing to do, says Wisniewski, is to set the point at which you exit a trade which may not be going in the right direction. “Set the levels that would confirm the exit and then size your entry according to the size of the stop. If a trader is able (and strong enough) to do this, then they’ve set themselves on a strong foundation.” Pro traders recalculate the size of each trade to keep it consistent with their risk appetite and tolerance levels.
The upcoming elections could bring opportunities for all traders, especially those who hedge their portfolio. While longer-term investors can buy their favourite stock on the dip, suggest experts. Joe Biden is still the favourite to win, but don’t count President Trump out yet. After all, Clinton was favoured to win 4 years ago and was beating Trump in the polls for virtually the entire 2016 campaign.
“Four years ago, the whole world was expecting Clinton to clinch the election, but based on the research we’d done at Axiory Intelligence, we were certain that Trump would come out the winner on election night. This year, things are playing out a little differently”.
This year, Biden seems to be the sure-winner, however, there is the possibility that Trump will contest the election results. Should that happen, it would have massive implications on the market.
“If the election night results are contested, or unclear, it will likely produce a surge of short-term volatility with huge intraday swing, mostly in the direction of stocks losing value”, says Wisniewski. That swing will prompt traders to unload risk assets and rotate to less risky assets. Some of those assets could include quality bonds, “safe haven” commodities like Gold, or even cash, with a preference for currencies proven to be more resilient in times of crisis, like the USD or JPY. We’ll have to wait and see how it pans out.
Provided by Axiory