Today its FOMC day and we as traders need to be prepared for this event. In fact some of our traders decide to take the day off because the market conditions will be more difficult than usual. In any case the FOMC days have a totally different character than other trading days. Also the character of the market changed throughout the day. The day may start slow or normal but it may then slow down after a while followed by intense volatility around the time when the news are finally getting out.
These recommendations apply to emini futures traders but other instruments will likely exhibit high volatility. In particular the currencies, bonds and even various commodities will have wide swings post FOMC announcements.
For our traders that insist on trading we have some specific recommendations:
1. Trade smaller size than your “normal” size, for example if you trade 4 lots you may decide to trade just 2 or even one lot. If you trade 10 go down to 5 or 2 lots instead.
2. Be very careful in selecting trades entries and be patient for the market to reach those areas, use your longer timeframes to locate the best possible entry locations. It is very possible for the market to overshot through those key levels therefore consider placing your entry accordingly further away so that you are not being stopped out unnecessarily
3. It is always good to check how your market of choice has behaved historically during FOMC, some instruments are more affected than other, some are acting in a very correlated manner. By refreshing your memory you are going to be not surprised if you get somewhat similar behaviour and may in fact be able to profit from the moves
4. The high volatility increases dramatically around the time of the announcement, sometimes a move may start a few minutes before and continue or reverse temporary after the announcement. There is no way of knowing what the actual reaction will be since each FOMC is different than the previous ones but the common fact is that there is a lot of volatility
5. Watch the volume traded, the hour before the announcement the volume usually decreases and often the entire day may have a low overall volume. This is because a lot of the “big boys” also may take day off and the liquidity is further decreased. In this low volume period market may drift around aimlessly and this is not the time to trade.
6. If you do enter a trade makes sure you have a clear plan that includes a stop in place and target(s). We teach students to use automated brackets when they trade and this day should be no different. Overall its vital to be disciplined and follow your trading plan to the letter.
7. Do not trade just because you have a gut feel the market will act some way, and do not be a “gunslinger”, these are sure ways to blow your account
I summary if you are a newbie’s we recommend you do not trade at all and just take day off and relax and recharge. If you do want to watch the market it may be instructive to switch on SIM and see how you are doing.
If you are a trader that want to learn more just join us at TTI ( http://thetraderinstitute.com/ ) in our Free trials. We offer extensive trials every month where you can see our head trader Simon Jousef taking day-trades live in the trading room. Not only we trade Futures, Forex, CFDs, ETFs and Options but we educate traders.