Meanwhile, with the election right around the corner, I naturally began thinking if there was any connection between that and the world of trend following. As a matter of fact, there is. The University of Iowa runs what is called The Iowa Electronic Market. Here is their description posted on the official website:
The Iowa Electronic Markets are operated by faculty at the University of Iowa as part of our research and teaching mission. These markets are small-scale, real-money futures markets where contract payoffs depend on economic and political events such as elections.
So, basically, you could open an account and bet, with real money, who you think will win the forthcoming election. Here is how the graph of this futures market looks like now:
The chart above shows that the traders of this market are pricing Romney at about 28 cents and Obama at about 72 cents. In other words, this translates to Obama having about a 72% chance of winning on Tuesday.
Interestingly, these futures market have an uncanny ability to be more accurate than any expert and most polls, as was the case during the previous election:
It is my view that the price of any market is king. Through the wisdom of crowds, markets are able to allocate scarce resources better than any one expert, guru or bureaucrat. This, in turn, is why price (or a moving average of price) is the only indicator I use in my trading.
