November 9, 2016 is a day that will live in infamy in US History as Donald Trump became the first President to win the election with no political ties. Now, to be very clear -- we never cared who won, we cared about the implications of each side winning. Say we’re cold or whatever you want -- but we’re TRADERS. We take an event and think what will this effect? How can I potentially profit off this information? Not to discount the fact I believe there is nothing dumber than people getting in political arguments in public or even worse on social media.
As traders, we don’t care about politics, as aforementioned, it’s all about how we can profit from the situation. I cannot stress that enough. What is going to be the aftermath of this change? What will be the outward effects?
Let’s take it back to before the election, when everyone wanted to talk about what would happen if each won --- and the polls. The POLLS! Can’t forget about the ever important POLLS! Every single poll pointed to a landslide victory for Clinton.
This was every economist in the world’s time to shine. The consensus was generally the same -- A Trump win and the markets should COLLAPSE. What does the market hate? Uncertainty. So a wildcard like Trump should crush the markets. It’s funny to look back on knowing the end result, but this is true. The masses believed Trump’s isolationist policies would create trade wars and send global markets into a frenzy. So, I’ll admit it, I drank the punch.
Here was the SPY heading into election night -- doesn’t look great. A steep fall from highs and a choppy mess running into major resistance in the form of sharply down-curling moving averages (along with an area be recently broke down from). So, I got short the market going into the event noting Odd Lot Theory and how everyone in the world KNEW Hillary would prevail and the market would rage.
What happened? You know the tale -- Trump wins and the market is down huge overnight. The SPY, which closed around $214 was now trading around $199, down 7%. I’m in bed at 3 am on my laptop counting my cheddar, telling myself to let my winners ride LOL. I pass out for about two hours and rush into the office, noticing we’re significantly off overnight lows. In fact, there is a buying FRENZY. I can see my P&L retreating closer and closer to breakeven. I don’t think I’ve ever seen buying like this. Something has changed. We are SNAPPING back.
I begin to quickly think on my feet. Who’s fucked? I’m fucked! Knowing the psychological implications of a snapback, I quickly switch tunes and cover my short break even and buy the SHIT out of the market. I load up on SPY and make some gameplans regarding Trump’s major policies. Trump ---- war ---- defense!
I typed up US Defense behemoth’s Boeing (BA) and Raytheon (RTN), made a game plan, found an entry and absolutely CRUSHED the trades. In BA, I saw it had the gap up two days prior and the consolidation to follow. In a time like this, where emotions are running so high, I know the envelope can get pushed. That isn’t an A+ chart by any means knowing the way I usually trade (where I need a ton of technical confirmation to get involved), but given the circumstances to match up with the heavy buying pressure, everything made perfect sense. I bought $142.50 with a $1 stop below lows and sold most towards the end of the day $145-146 but held onto a small piece for the $150 area sell.
BA daily chart as it began the Trump Rally.
Similar to the BA trade, the chart didn’t tell the story in RTN. It was the drastic implications of the news along with the heavy volume buying so I bought new all timers $143.50 and a low of day stop at $142.96. I sold along the way up but it ended up being too feasty and I ran out of stock that day! My highest sell was $151.22 for a solid 14:1 risk/reward.
These trades prove how you need to be flexible within your psychological process. You always need to wonder what you’d be thinking if you were on the opposite side of the trade. If I had been stubborn about my initial short, I would have likely taken a huge loss, averaged down a bunch of times & severely drained my mental capital. Instead, I made a few thousand bucks because I was able to recognize the changing of tides and acted appropriately. Being able to quickly piece together a puzzle and gather all information with a clear mind is the difference between the greats and the losers. All in all, be flexible and quickly think on your feet to form gameplans --- OH -- and NEVER listen to an economist.