American Election and Brexit – Introduction
The American election and Brexit are the two main events of this year. Before the election, nobody expected Trump to win, including Trump himself. Most pollsters predicted a landslide win for Clinton. In fact, Huffington Post’s data team gave Trump a 2% chance of clinching the presidency. The same happened during the Brexit vote where most people expected the leave side to win. When the vote were cast, the leave side had won by a very large margin. These two events have changed a lot of things this year. As a trader, there are a few things you need to learn. This article highlights the key lessons to learn.
Experts are Not Always Right
The first thing you need to learn from these major events is that experts are not always right. In the two instances, data crunchers and experts who were relied by the public were wrong. Their predictions and models were not correct. As a trader, the earlier you realize that experts are not worth it the better it is for you. Many times, I have read the so called experts making predictions which turned out to be wrong. For instance, Bill Gross is one of the best bond traders of all time. He established PIMCO which now manages more than $1 trillion in assets. In 2015, he predicted that the crash in the bond market was imminent. Jeff Gundlach who runs DoubleLine Capital made his calls in January this year. However, he is among the worst hedge fund performers today. Therefore, you should always do your research and make your independent decisions.
Nothing is Impossible
When Trump announced that he would run for presidency, the establishment wrote him off. The republican party, the democrats, and the media believed that there was no way for Trump to win the election. In the same way, Nigel Farage and the Brexit crew were written off from the start. This was also facilitated by the media and pollsters who had the numbers. At the end of the day, the two camps won. The lesson here is that nothing is impossible. Maybe you want to be a pro trader. You should not listen to the naysayers. You should listen to your instincts and follow your dream.
It’s Safe to Go Against the Crowd
You should not always follow the crowd. At times, it’s good to follow to walk alone in the dark. You never know what you will find in that direction. As a trader, you will often find yourself walking alone. In the earning season, you will often find your valuation colliding with those of other analysts and traders. During data releases, you will find yourself in the wrong direction of the prediction market. If you are convinced that something will happen, then you should follow your instincts. Remind you the number of experts who wrote Trump and Brexit off.
Key Historical Indicators
Last but not least, you should learn about the key indicators that have spill-over effects. For instance, in the earnings calendar, when Morgan Stanley reports great earnings, you can easily predict that the same will be for Goldman Sachs. In the American election, there were a number of indicators to predict a Trump win. For instance, the GDP numbers released before the election showed the American economy in a not-so-strong recovery. In addition, the employment numbers released a week earlier were not as strong. Historically, it has been shown that when bad news break before the election, the incumbent party will lose. As a trader, you should learn to use historical information to predict the market. Remember, a common idea is that nothing new happens in the financial market.