How to Trade the U.S. Presidential Election, Pt. 1

What you think you know can hurt you.
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There's an old saying - to know what you know, and to know what you don't know, is the mark of one who knows. Today we're going to focus on knowing what we don't know about the upcoming U.S. Presidential Election. 

2016 vs 2020 comparison chart via Predictit

2016 vs 2020 comparison chart via Predictit

According to Predictit,  a political betting website, Joe Biden currently has a 67% chance of winning the U.S. Presidential election, which is just over three weeks away. 

With odds like that, this election should be a done deal. But if we take a closer look at the chart, we see that Biden's 67% chance of winning is actually lower than Hilary Clinton's chances at this time during the previous election. With less than one month to go in 2016, Predictit gave Clinton a better than 80% chance of winning.

trump comparison chart

Check out this next chart, from RealClearPolitics. On the top line, we see Donald Trump's chances of winning the 2020 election are quickly fading. On the bottom, we see this plunge is nearly identical to the one Trump experienced in 2016. 

Source: Google Images

Source: Google Images

What if we just follow the experts instead? Despite their bold proclamations, the so-called experts are just as clueless as the rest of us as to what will happen next. 

Just after the 2016 election, Nobel Prize winning economist Paul Krugman boldly proclaimed that markets would "never recover" from Trump's victory. 

Nasdaq 100 chart via TradeStation

Nasdaq 100 chart via TradeStation

At the time, the Nasdaq 100 stock index was trading below 5000. Since then, the Nasdaq 100 has actually traded above 12,000. In this case, listening to an expert would have cost investors dearly. 

What have we learned? We can't trust the polls, the betting markets, or the so-called experts. 

What will happen next? I know that I don't know, and I know that you don't know. The question is, do you know that you don't know? Understanding that is the first step to trading this election. For the next step, be sure to check out Part 2 tomorrow.  

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.