How Not To Trade News Events
In the latest episode of the Two Blokes Trading podcast (ep 25, available here, since you asked) Tom and I poked a bit of fun at ourselves and each other about our disastrous attempt to trade the Donald Trump election victory.
Although it was some light hearted banter, and we both traded very small, affordable amounts, there are still some important lessons that we learned from the events of November 8th.
We had Brandon Turner of Intex Learn on the podcast again to give us the lowdown of how he traded the event successfully. You can listen to the podcast to hear his victory speech!
Not Comfortable, But Not Alone
Given how much of our trading dirty laundry we air in public, you may be surprised to hear that we both actually find it rather difficult to talk about our failed trades. Public exposure of your failures on a podcast and blog is actually quite disturbing!
But don’t forget, we are just as egotistical as the next guy! So if you got everything right on election night, then our shame is your entertainment! And, if you made the same mistakes, or other mistakes entirely, then I hope you can take a crumb of comfort in knowing that you are not alone.
Learning to trade is difficult. The only way to avoid becoming part of the “95% failed trader” statistic is to keep plugging away until you become profitable!
Anyway, we always say on TBT that we are not here to give trading tips or advice - we have guests on who do that for us! One thing I now feel qualified to share some wisdom on, is how not to trade news events!
1) Don’t be cocky
Or, don’t assume your correct analysis will always lead to a profitable trade. The world is full of great market analysts who never trade profitably….
In episode 24 of the Two Blokes Trading podcast we agreed that if Hillary got in we wouldn’t trade. This is because it would just be status quo.
But if Trump got in we would short USD/JPY. Japanese Yen is a safe haven and the uncertainty of a Trump victory was likely to negatively impact the US Dollar.
We didn’t pull this out of thin air. Anyone with an eye on market commentary leading into the election will have seen lots of much smarter people than us suggesting a similar thing.
However, even though we got this correct (temporarily), we still totally failed to make any money on the trade!
2) Don’t be lazy
We were busy. We had to go abroad for a conference...Tom had a couple of days holiday...I had to do emergency baby-care when our childminder pulled out...etc etc excuses excuses… We just didn’t prepare adequately.
Basically we were both pretty confident that Hillary was going to win and, of course, we weren’t alone. She was a sure-thing! Until she wasn’t.
Sooo given that we weren’t going to trade a Hillary victory we just...didn’t really prepare for the opposite scenario. As it was, this cost us! Brandon knew exactly which district of which county could predict the election, he knew exactly which swing states he was looking for. In short, he knew what the scenarios could be, and he knew how he would trade them.
3) Don’t be a wuss
I saw the swing states start coming out for The Donald. I saw the shocked faces of the TV anchors. I saw USD/JPY start to plummet. I froze.
Being inadequately prepared meant I couldn’t see that the writing was on the wall for Hillary. The markets already believed it was Trump Time in DC and I should have got in. But I was trading with Fear...and I think I read somewhere that I shouldn’t do that…
4) Don’t be greedy
So, finally, Billy Big Bollocks here plucks up the courage. He has rationalised staying out of the market by saying to himself ‘well, if The Donald does get in then this is a multi-day or multi-week move - the markets will hate this!’.
So far, no money lost.
But...then I get greedy. The price has dropped big style. What happens if this is another Brexit? I can’t miss all these glorious, juicy pips! Especially after my initial Yen-Short analysis has been proven correct!
And, sure enough, BOOM! The price bounces.
So far, so classic newbie retail trader. Trading with both fear and greed simultaneously, selling the very bottom...failing to see that the Big Money was changing it’s opinion of Trump until it was too late…
But, at least Tom cocked up the exact same things!
There is Always a Next Time
This is all part of our trader education. If you are reading this and giggling because you creamed it and made loads of pips then I am genuinely happy for you!
But, if like us you messed it up a bit then rest assured it is just a normal part of trader education.
We poke a bit of fun at ourselves on the podcast and probably talk much more about our failures than our successes, but this was waiting there to be profited from and we were left with egg on our face!
But, next time, we will be prepared, we won’t be scared, we won’t be greedy and we will make some bloody money!