How to trade the FOMC event and why you should probably not trade it at all
|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.
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