Trading FOMC

Eight times per year a branch of the Federal Reserve Board, known as the FOMC (Federal Open Market Committee), meets to set key interest rates. They also make decisions as to whether to increase (or decrease) the money supply, known as Quantitative Easing (QE).

The dates and the time of the FOMC meeting announcement is displayed on the Federal Reserve website.

Here is a simple strategy for trading the FOMC.

At the scheduled time of the FOMC meeting announcement, there is usually an initial big move in one direction – this is known as wave A. This first major move is the “true” direction – i.e. where the market really wants to go. (Note: Do NOT execute any trade at this point yet).

After the initial "reaction" (wave A), there is then a retracement of this move (wave B) which takes the market to at least the half way back of the wave A. This is known as the “fake” move (Wave B).

Then we could see a first small reaction (wave C) followed of a new surge in the direction of the wave B that run the stops of the previous attempt (wave C). This is known as the “shake” move (Wave D).

Enter the market when the ES reaches the cluster of point D (AB=CD) and VWAP/POC/HVN (Value) with a 3 point stop and an open target. (Alternatively, you can scale in to this trade with half size at the point D, then add the remaining half at the retest of value).

What follows is a big move which is in the same direction as the initial move (Wave A). Close half your position once you have made 3 points on the trade, bring your stop to breakeven, and then use a trailing stop for the remaining half.

The key is in the waiting, to play only the 3rd leg of this zig-zag move. That 3rd leg shows the real intent after the news and remember, don't try to use any setup as a rigid, systematic trading rule, blindly applied to all market conditions. Context is key.