FXStreet send me a survey about the upcoming FOMC event, what I expect to happen and how the markets will react. In response to that, being a trader and not an analyst, here's what I think you should be aware of regarding such an event and how to approach it.
I think that if you don't have a specific plan for FOMC days, it's best to stay out of the markets. Especially if you're a day trader, for two reasons. First of all before the statement the markets are quite thin and usually there's not a lot of movement. Bad conditions to day trade as we need liquidity and movement to be successful as day traders. Now when the statement is actually released, volatility usually explodes with prices moving very fast while liquidity is very low. This often results in significant slippage when your orders get executed. This again are conditions not favorable for day trading.
The exception here is if you know what you're doing. This means you did your homework, looked at all kinds of statistics of what happens on FOMC days in the market you're trading. You know what kind of moves/volatility is likely to expect, what kind of orders to use to enter/exit trades and what position size will work for you in such a fast market. You also know where you can trade under such conditions, you don't want to trade at a broker that is likely to widen the spread by a crazy amount or whose platform might go down. In other words, you have a specific plan to execute that provides you an edge on FOMC days. If you don't have that, again just stay out and come back on the next trading day when the markets are back to normal.
If you're trading longer-term and have positions on, I suggest to make sure your stops, if you're using fixed stop-loss orders, are far enough away from prices to not get triggered by some knee-jerk reaction from the markets. On such days it actually often is a good idea to cancel any stop-orders and put them back after the event. But that's something every trader should test themselves depending on their strategies.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
Editors’ Picks
EUR/USD stabilizes near 1.0800 as trading action turns subdued
EUR/USD holds steady near 1.0800 on Thursday and remains on track to end the day in negative territory following upbeat macroeconomic data releases from the US. The action in financial markets turn subdued as trading volumes thin out heading into Easter holiday.
GBP/USD extends sideways grind above 1.2600
GBP/USD fluctuates in a narrow channel above 1.2600 on Thursday. The better-than-expected Initial Jobless Claims data from the US and the upward revision to the Q4 GDP growth help the USD stay resilient against its rivals and limits the pair's upside.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays near 4.2% after upbeat US data and makes it difficult for XAU/USD to gather further bullish momentum.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.
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