CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81.76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

70% of retail investor accounts lose money when trading CFDs with this provider.
81.76% of retail investor accounts lose money when trading CFDs with this provider.

6 election day trading strategies – how to ride election market waves

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Author: Alix Dougherty

We’re sure you know that global events have a huge impact on the markets. 

Take Covid-19 for example, which caused significant spikes and dips across numerous CFD markets. But it’s not just the large-scale events like this one that create market opportunities, it’s the day-to-day news too. So when it comes to an election, the market could be unpredictable, right?   

To help you prepare for potential election market volatility, we’ve put together 6 election day trading strategies…

#1 Turn back the time machine – review historical election market volatility

When it comes to trading an election, the first thing you’re going to want to do is take a look back – how have markets reacted to elections in the past? 

From the UK to the US; whatever the type or scale of the election, the market has almost always seen changes (dips and spikes!).

What to look for in your research:

  • Election results. Take a look at specific election results and market shifts at the time – did a surprise win or close race make the markets dip or spike?  
  • Currency rollercoasters. Elections sometimes send currencies on a wild ride. Look back at how the currencies you’re thinking of trading have reacted to elections.
  • Sector shifts. Before choosing an election day trading strategy, take a look at which sectors have reacted to elections the most in the past. Energy? Tech? Do your research!
  • Pre-election jitters. You’ll also want to take a look at how markets have behaved leading up to elections. How did the markets move? How extreme was the volatility? 

#2 Keep your phone handy – monitor the apps daily to react to political news

What’s going to be important when trading election market volatility is staying informed. While it may seem simple, it is key. 

Political news can change the markets in an instant – so while the markets are moving fast, you need to too. 

What to keep your eyes peeled for:

  • Breaking news. Always be checking the apps! Monitor the news to see what major political developments have occurred and how people are reacting to them. 
  • Sentiment shifts. Keep an eye on how the broader market is feeling. Political events can quickly change investor confidence, leading to unexpected market movements.
  • Instant alerts. Stay ahead of the curve by setting up instant alerts on your phone. This way you can quickly react to significant news that could impact the assets you’re trading.

#3 Keep an open mind – consider new symbols & avoid overexposure to 1 asset 

Something you should consider when choosing an election day trading strategy is diversifying your trading portfolio. 

Purely focusing on one asset can increase your exposure to risk. But broadening your scope can spread that risk across different markets. Also, you’ll open yourself up to new market opportunities you might not have considered before!

What to explore before settling on a trading strategy:

  • Alternative assets. Consider what else you could trade. Indices? Commodities? Review historical election market volatility and even take a look at what other traders are doing. 
  • Sector sensitivity. Look into which sectors are more sensitive to political events. This could potentially be energy, tech, or financials. Just consider diversifying your trading positions.
  • Risk balance. Avoid overexposure by spreading your trades across multiple assets, to help you manage risks during unpredictable market movements, caused by the election.

#4 Practice risk management – use tight stop-losses & plan your exits

Whether you’re trading before, after, or on election day, practising risk management is essential. Elections are notorious for causing extreme volatility, and as we’ve mentioned, it can strike at any moment!

Tight stop-losses and a well-thought-out exit plan can help protect your capital from unexpected market swings.

What to focus on to help set clear risk limits:

  • Stop-loss strategies. Set up stop-loss orders to automatically close positions if the market moves against you, limiting potential losses.
  • Exit points. Think ahead and predefine your exit points so that emotions don’t guide your decision-making if the markets start fluctuating wildly. 
  • Risk-to-reward ratio. Plan your trades with a clear risk-to-reward ratio in mind, ensuring each trade has a structured approach to potential gains and losses.

#5 Be mindful – explore how others are approaching their election trades

As we mentioned, when trading during an election, it is always a good idea to keep an open mind and consider what new trading strategies you could try. 

To help you do this, taking a look at what other traders are doing is a great starting point! But remember to be mindful and adapt strategies to suit your style and risk appetite. 

What to look for when gauging market sentiment:

  • Community insights. To help broaden your scope, you might consider browsing online trading forums and following discussions to see what strategies others are using.
  • News articles. Always stay up-to-date on political news and read commentary from market analysts for additional perspectives on potential election market volatility. 
  • Trading trends. See what’s trending in trading! Get inspired and observe trends to understand how the broader trading community is approaching the election. 

#6 Don’t forget the fundamentals – keep an eye on economic indicators

While you’re planning your election day trading strategy, it’s important to remember that election market volatility isn’t the only factor at play. Trading fundamentals remain just as crucial.

It is essential not to lose sight of core economic indicators – as these factors often play an equally important role in driving market movements.

What you might want to consider alongside political events:

  • Inflation data. Keep track of inflation trends, as they can influence market reactions in tandem with election results.
  • Interest rates. Central bank decisions on interest rates can shift markets too, so while elections grab attention, rate changes could also be in play.
  • Employment reports. Labour market data is another key indicator that can sway market sentiment, regardless of election outcomes.

Do your research, practice risk management & keep an open mind!

Trading during an election can be unpredictable, but with the right strategies, you’ll be better equipped to handle market volatility.

Take the time to look back at historical trends, stay on top of news, consider exploring new assets, and remember to always practise solid risk management. 

Stay flexible, stay informed and be ready to adjust your strategy as needed!

Ready to grab hold of potential election market volatility?