The New Day-Trading Rules for Trump 2.0
The Donald Effect: Trading the Madness
Anyone who has been trading any type of financial market over the past few weeks would have realised something feels different. Volatility is back thanks to The Donald, and it’s forcing me to adjust the way I trade.
Don’t get me wrong. As a professional trader, Volatility is your oxygen. It’s where you make your money. When you’re first setting out on the journey though, it’s very intimidating. I remember waking up and seeing large red or green screens and be paralysed by fear, like a deer in headlights. Now that I have both 20+yrs experience and a hell of a lot of historical data which shows how the markets consistently react during these periods, I absolutely LOVE waking up to these same screens (and given how the weekend futures markets are looking, am chomping at the bit for tomorrow morning!).
But ‘Trump Volatility’ is different. Whereas during normal times, even though markets are ‘Volatile’ and may move 100pts in a day, it’s predictable, relatively gradual, and can be traded easily.
The last few weeks have seen multiple ‘Flash Crashes/Rallies’ on the back of a tweet, statement, or rumour around what Trump will do next. Majority of the time they quickly snap back, for a net move of 0. Prime examples are the 65pts fall on the SPX in the space of 30 minutes on the 21st January or the 15pts, 1 minute flash just last Friday.
I’ve been lucky enough to be on the right side of these a few times, and on the wrong side a couple, including last Friday, where I had a sizeable long position only to get stopped out at the exact bottom tick before heading 40pts higher as I had expected.
So, I resolved to make some changes to the way that I trade SPX. I guarantee that many will disagree with some of these, but here are some of the things that you could look to implement:
Remove Stop Losses. As long as you’re not over-levered on any particular position, this shouldn’t be an issue, and will avoid getting stopped out only to see the market quickly reverse.
Add Take Profit orders. Converse to the above, you want to make sure you take advantage of these mis-pricings, as and when they occur. You can re-enter positions if / when market snaps back.
Add floating Limit Orders either side of the market. See above. Limit orders will allow you to take advantage of temporary market mis-pricings.
Ensure that you hold enough equity in your brokerage account vs your margin and position size to cover these potential moves. Even if you don’t have stop losses in place, your available account balance will effectively act as your stop loss, and your position and account will be liquidated if margin > account balance.
So there it is. It’s important to note that from a point to point perspective, I haven’t seen Trump’s antics affect the final result materially. Ie if the historical data is giving a high probability of finishing the day higher, the day usually finishes the day higher. It’s just that the path to get there has become a lot more windy.
In my opinion Trump 2.0 will create more opportunities for smart traders, however Will also put many out of business. Let me know what you think.
Cheers
Marto
That's the shot! This is a good practical article! Those 4 points you listed are something I've always used. The Stop use is variable pending conditions. Those outlier limit orders are like getting a bonus payout early. I don't expect them but if they happen then Cha-ching. People fear re-entry. Fear often reflects an insecure mindset right? So for people who want to "Trade" I feel the best thing to do is write down what a Trader is and what a Trader does. This won't be the same for everyone and that's fine. However, it has to be defined clearly in the mind of the individual.