How to Trade the Post-FOMC Madness Like a Wall Street Pro

[Image] How to Trade the Post-FOMC Madness Like a Wall Street Pro One of the most important economic indicators every trader needs to understand is interest rates. As a macro trader, I see rates as one of the biggest determining factors in my trading decisions. Yesterday, the Fed held its monthly Federal Open Market Committee (FOMC) meeting and the central bank members voted unanimously to keep interest rates unchanged. This is what the market was expecting, but how traders will actually react to the news remains to be seen. At the time of writing, Chairman Jerome Powell hasn’t made his speech yet, which is often when the big price swings occur. But regardless, I’ve traded long enough to know how to handle a crazy macro week like this one. So, keep reading and I’ll show you three critical tips for trading the post-FOMC madness… The Macro Backdrop Before we get into my three tips, let’s look at the big picture… As always, I’m keeping a close eye on macroeconomic indicators that could affect the post-decision market reaction. And the way these indicators are looking just before the FOMC meeting can potentially foreshadow the upcoming price action. With that in mind, here’s what was happening (at the time of writing) on the macro side heading into the Fed’s rate decision… Stocks were choppy… - Unsurprisingly, the market was undecided heading into the FOMC meeting. - The SPDR S&P 500 ETF Trust (NYSEARCA: SPY) was up a marginal 0.27% while the Invesco QQQ Trust (NASDAQ: QQQ) was unchanged on the day. Bond yields dipped… - The 10-year U.S. treasury yield declined 3.4 basis points to 4.33%. - But if you look at the big picture, yields are still near record highs. They hit their highest levels since 2007 on Tuesday. Oil dipped slightly (but still surging)... - West Texas Intermediate (WTI) crude shed 2.34% to $89.5 a barrel. Brent crude, the international benchmark, slid 1.25% to $93.41 a barrel. The dollar slipped… - The U.S. dollar index, which measures the currency against a basket of rivals, was 0.2% lower at $104.86. Gold fell slightly… - The precious metal lost 1.02%, trading for $1,942.80 per ounce. Now, let’s go over the key takeaways from the FOMC meeting… - The FOMC unanimously voted to leave the benchmark rate unchanged, maintaining a target range of 5.25%-5.5%, which is a 22-year high. - The 'Dot plot' of rate projections reveals anticipation of one or more rate hikes this year; however, projections for 2024 and 2025 have each increased by a half-percentage point, indicating an expectation for sustained higher rates. - Additionally, a majority of FOMC policymakers (12 out of 19) anticipate one more appropriate rate hike this year, while the remaining seven suggest maintaining the current rates. - The median projection for economic growth in 2023 has increased to 2.1%, up from 1% in June. - Officials have revised the unemployment forecast, expecting the jobless rate to peak at a lower rate of 4.1% instead of the previously anticipated 4.5%. All this to say, these macro indicators are lining up with my prediction of an ultra-volatile fall season for the stock market. So, how can you trade the post-FOMC madness while maximizing your best opportunities and avoiding common pitfalls? Here are three tips I’ve gathered from my decades of macro trading experience that have transformed my performance for the better: Tip #1: Trade One Day at a Time In the current market environment, I think it's best to focus on trading one day at a time. Instead of making long-term predictions or holding positions for a long time, stick to short-term plays that aren’t dependent on what the market does next week or next month. Look, multi-day swing trades can work in a different market environment… But right now, trying to make bets on future trends can lead to disaster. There’s too much uncertainty and too many variables at play. My advice? Don’t hold your contracts for more than a day. Focus on the overnight “Burn Notice” trades, they’re ideal for this macro-driven environment. If you nail one, take your wins while you have them, and don’t let losses snowball. If a trade starts going against you, cut it immediately. Adaptability is key during this time, and it's important to adjust your strategy according to the market's demands. Be nimble… Tip #2: Don’t Get Married to Your Positions It's a big mistake for traders to become too attached to their positions. I've seen it happen many times before… A trader will form an opinion about a particular stock or industry and get stuck in that mindset. Even when the price movement strongly indicates the opposite, they refuse to admit they were wrong. Here's the most important point: as a trader, making money should be your priority, not proving yourself right. So, here's the lesson I want you to remember … Don't be afraid to admit when you're wrong or if your timing is off with a trade you're making. When you see the price action going against you with high trading volume, cut your position (and even consider taking the opposite side of the trade). By switching sides in time, a trade that would have been a significant loss could potentially turn into a win. But if you stubbornly cling to your incorrect predictions, you'll get destroyed. Consider this as you’re trading the post-FOMC madness. Tip #3: Watch Out for Trend Reversals I’ve been warning you that the market could be gearing up for a major trend reversal. We’re in store for some major volatility. If you aren’t ready for it, you’ll get smoked… When a big trend reversal takes place, there are always some traders who get caught flat-footed. They don’t see the reversal train barreling towards them and fail to get off the tracks before it’s too late. I saw this time and time again on Wall Street. Traders would come and go because they couldn’t adjust to the market in time. But there’s an easy way to avoid this … listen to what the market is telling you. The truth is that the stock market has a personality. If you know what to look for, it’ll send you clear signals about where the price action might be headed. Why am I bringing this up now? Because the FOMC meeting (and the central bank’s subsequent decision on interest rates) is a hugely important catalyst that could hugely affect stock and commodity prices. And if you’re prepared when opportunity strikes, you could potentially make a fortune. I’ve been waiting years for a moment like this. But we’ve gotta handle it correctly… Closing Thoughts Be careful with your setups, but don’t sleep on this enormous opportunity to trade during an especially volatile season. Stay Street Smart, Jeff Zananiri P.S. 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