During the regular session on Wednesday, the Dow Jones Industrial Average slid 522 points, or 1.70%, despite jumping more than 300 points earlier in the day. The S&P 500 shed 1.71%, and the Nasdaq Composite slumped 1.79%.
How can we trade smartly at FOMC event?
Based on my previous blog, the market was on a bearish trend and going into FOMC looking weak. The market behaves almost similarly at every FOMC event. I would like to break the event into 3 pieces at 3 different time slots during the FOMC meeting day.
A. FED rate announcement – @ 1 PM CST
B. Powell starts to speak n the market goes peak of the day – 1:30 – 1:45 PM CST
C. Powell finished speaking – at 2:00-2:30 PM CST
Based on the recognized FOMC pattern, our trading group was informed on all 3 possible consecutive trading WINS.
The above chart is $SPX – S&P 500 cash index 5 min time frame chart. As you can see just a few mins before 1 PM you need to load $SPX puts. (Action A) As soon as the FED statement is out to market takes deep dive (Big red candle). Then it consolidate until Powell took the stage. As soon as Powell starts speaking, the Market tried to rebound from a brutal selloff. Our traders bought took $SPX bullish positions. In the middle of his speech, $SPX touched from $3820 to $3900+ in a few mins (Action B). $SPX consolidate at that level for a while and then started going down. Perfect time to unload bullish positions and take bearish positions on 2-3 consecutive red candles (Action C).
It was nothing but a powerful AI machine algorithm that drives the market on a day like this. $3800 was a psychological level. As soon as it broke, the Market flush started.
Being a retail trader it’s always difficult to time the entire scenario on an FOMC event but if you look back every time it follows the same pattern so not a bad idea to make your plan ready and execute either manual or conditional orders. I am sure today was the trader’s favorite type of day. To learn more about various options strategies or how to hedge against your long-term portfolio, contact us at FinXDATA.com.