How Politics Affects Trading – and How You Can Profit From It
The hottest news source for traders these days isn’t Reuters or Bloomberg or Business Wire.
Instead, it’s the Obama Wire.
Perhaps at no other time in history have traders been so attentive to what a president is saying or doing – and making so much money from it. Indeed, the Oval Office has become a rich source of trading ideas for those smart enough to be paying attention, and savvy enough to profit from it.
Like it or not, some of the sharpest minds in the country – and in the world – work on Wall Street. Many of them are traders. They not only understand how to spot opportunities, but how to capitalize on them. And, with President Obama’s broad agendas impacting so many industries, traders are having plenty to work with.
But, as I teach my students, you don’t have to be a political junkie to know what’s going on. You simply need to have an overall grasp of the present political picture, and be aware of whatever Obama is talking about – or even rumored to be discussing – during a given day or week.
For instance, when the president takes aim at the larger financial institutions, it frequently causes their stocks to become volatile, and creates excellent opportunities for traders. When the president appears to be favoring changes that will negatively impact this group, these stocks go down – sometimes sharply. This is especially true whenever the president appears to ratchet up the intensity or strongly voice his opinion during a speech, rally, or some sort of event.
And, as almost always happens, when one group gets hits, another goes up. In this case, the stocks of smaller banks often shoot up as their bigger brethren nosedive.
The same volatility occurs in other industries, too, such as automotive, health care, insurance, and alternative energy. It seems whatever the president is talking about at the moment becomes the beneficiary of stock movement – higher or lower.
Keep in mind this isn’t just “trading the news.” It’s less obvious than that, and requires more insight. It’s being aware of the subtle – or sometimes less subtle – changes that occur in the president’s stance on issues, and being prepared to take action based on that.
It’s not important whether you agree with the president’s current view on an industry, or about possible rule changes that could affect these fields. Your job as a trader is to identify promising trading opportunities, and then exploit them. And, remember, volatility is your best friend. As a trader, you should want a president who’s very active and seeks widespread change, as that creates movement in the stock market.
So, stop waiting for your personal stimulus package. The government isn’t going to provide you with one. Instead, create your own stimulus package by making profitable trades that are linked to whatever the Obama Wire is indicating.
After all, there’s nothing more American than capitalizing on opportunity.