Many people believe that it is impossible or just “crazy” to learn how to trade the FOMC meeting release.
Impossible? NO. Crazy? YES.
In fact, let me share with you the “crazy” but highly profitable trading strategy I use to trade the Fed announcement.
Take a look at this chart:
The strategy I use to trade the Fed announcement is also called sometimes called the “ABC” strategy.
I describe it as “crazy” because you need to do the OPPOSITE of what the market wants you to think and act.
The above 5-minute chart shows how the stock market acted after the Fed announcement came out.
I will explain in a moment how the strategy works. But first, here’s another chart of the same market on a 1-minute timeframe:
Let me explain the strategy to you as simplest as I can:
1. First you need to wait for the Fed Announcement to come out. This happens at 7pm Nigerian time (2pm Eastern).
2. Wait for the market’s FIRST reaction to the news on a 5-minute chart of the Dow or S&P. (NOTE: For an example on a currency market, see the chart below.)
3. The market’s FIRST move is called “Move A” – this is the REAL direction the market wants to go. Yesterday, Move A was upwards (see chart above).
4. Remember: we do NOT place any trades at this point yet…
5. We then wait for “Move B”. Move B is called the “FALSE” move – and is usually always in the OPPOSITE direction to Move A. Yesterday, Move B was downwards.
6. We enter a trade when price reaches a place of strong support: like the 200 moving average on the chart. I also like to use our new LT Edge indicator (to be released soon) as an entry signal. See chart below for another example:
7. After entering the trade, we set our stop-loss and we wait for Move C to begin. Move C is in the same direction as Move A – the REAL direction the market “wants” to go.
Notice that yesterday we entered at the end of Move B – using the LT Edge indicator to increase our odds. This worked like a charm as Move C took us into profits – at least 70 pips on the GBPUSD and 19 points on the S&P (which equates to 190 points on your P&L!).
So remember the next time there is a Fed announcement – keep it as as simple as ABC!
Hope it helps and good trading!
For more strategies and market analysis weekly and monthly financial forecasts page.
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Disclaimer: The tutorial above is not a trading advice or instructions by Instaforex Nigeria but meant to create awareness.