How the FOMC meeting impacts my trading

The Federal Open Market Committee on Wednesday announced that it was beginning to lessen its bond buying and therefore taper off its economic stimulus

That roiled the markets. The policy decision wasn't entirely unexpected, but traders responded. response.

In terms of impact, it's as though every symbol listed had announced earnings all at the same time.

I'm always reluctant to trade news. My entire method of trading is based on the market's consensus about the trend of a symbol's price. News -- be it earnings or the FOMC -- disrupts that consensus-building process. It takes a bit of time for a new consensus to emerge.

I deal with it by not trading bull and bear signals generated or confirmed on the day news first shows its impact. I will trade the following market day, but only if the price follows through with a new bull or bear signal.

In terms of Wednesday's announcement, I'm requiring the signals generated in Tuesday's trading and confirmed on Wednesday to produce a fresh confirmation today by trading beyond the present 20-day price channel. I'm requiring Wednesday's signals to trade beyond today's price channel, rather than simply trading above Wednesday's breakout level.

It's a stringent rule, but, I think, a wise one. I'm a great fan of the 19th century London financier Nathan Mayer Rothschild, who famously said, "Buy to the sound of cannons and sell to the sound of trumpets."

Wednesday's FOMC announcement was the trumpets. In waiting to trade, I'm cocking my ears for the sound of cannons from the next battle.

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.