When the market’s facing a major catalyst — like the Fed’s FOMC meeting and Chairman Jerome Powell’s speech yesterday — you can’t trade the same way you do during a normal week, expecting similar results…
Take it from me…
Over my 12 years trading the stock market, I’ve seen a lot of Fed decisions and speeches come and go.
In other words, I know my rules for trading around a Fed meeting, but many traders have difficulty harnessing their discipline.
And that’s a problem…
You see, if you don’t follow these rules, your account could get body-slammed during this potentially extra-volatile week of trading.
With that in mind, keep reading and I’ll explain my game plan for trading after the Fed’s rate decision…
Key Takeaways from the FOMC Meeting
First, 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%.
Now, let’s talk about how you can trade this week like a pro based on this data…
Don’t ‘Sports Bet’ The Stock Market
Even though the major question has now been answered, there’s still an enormous amount of uncertainty as to how the market will react over the next few trading days.
In times such as these, I find it’s better to wait until after the catalyst (playing the reaction) rather than placing a ‘sports bet’ before the whistle blows.
Notice that I didn’t try to put any macro-driven trades on or make any heroic predictions before the Fed meeting.
This comes from experience. After so many years of trading, I’m more than comfortable sitting on the sidelines and waiting for the news to hit before placing my bets.
But now that the big question has been answered, there are other considerations options traders need to keep in mind for trading the market reaction to the FOMC meeting…
Stick to the Tickers You Know Best
It’s not the time to get fancy when the markets are extra volatile.
During weeks such as this one, I recommend trading tickers you’re familiar with and charts whose personality you understand.
Take a look at the tickers from some of my recent trades…
- AdvisorShares Pure US Cannabis ETF (NYSEARCA: MSOS)
- Canopy Growth Corporation (NASDAQ: CGC)
- Aurora Cannabis Inc. (NASDAQ: ACB)
- Tilray Inc. (NASDAQ: TLRY)
Notice anything in common?
SPOILER ALERT: They’re all stocks in the cannabis sector.
I’m focusing on weed stocks because they’ve been extremely volatile over the past month, presenting wonderful trading opportunities (like my $20,000 overnight win on CGC).
Are there possibly better setups out there out of the thousands of tickers in the markets?
But I’d still rather trade the charts I’ve been studying for weeks than spend countless hours scanning my watchlists for a new and exciting setup.
Are you familiar with this trading “loophole?”
Are you familiar with the “loophole” that helps small accounts grow exponentially?
No, it doesn’t have anything to do with penny stocks or crypto…
And this strategy works regardless of whether the markets are up OR down…
This little-known options “loophole” is something you can use to grow your trading account right now…
This is even more true when there’s a major FOMC decision on the minds of traders.
Extra volatility means extra unpredictability…
So, why would you trade anything other than the charts you’re most comfortable with? Why make it more difficult than it needs to be?
Stick to what you know — especially this week — and I bet you’ll find more confidence in your trading.
Stay Close to the Money
One of the best parts about options trading is that it allows you to build strategies in so many different ways.
But if you’re not careful, this luxury can bring danger to your account’s doorstep…
If you don’t know the potential perils of choosing a far out-of-the-money (OTM) strike price, you could get yourself into an account-ruining trade.
First, let’s talk about strike prices — the price the underlying stock needs to exceed by your expiration date for your contracts to pay out.
If you buy a contract that’s far out of the money — and the underlying stock hits that number by your expiration date — you’ll make a bigger % gain than if you had bought at-the-money (ATM) contracts.
This temptation often lures newbie options traders into a trap. They look at the ‘max profit’ on the trade and think they’re gonna make it, but that’s a mistake.
If you buy ATM contacts, and you’re right about the direction, you’ll still make a much larger % gain than if you simply buy and sell shares.
On the other hand, if you’re holding OTM contracts and you’re wrong about the direction — even for a few hours — your position could lose more than half of its value.
WARNING: This week, your wrong-direction contracts will lose value quicker than normal due to extremely high implied volatility (IV) on the contracts. (Yet another reason to stay close to the money!)
Bottom line: Don’t shoot for a crazy price target this week. If you’re gonna put a trade on, be realistic and pick a strike price that’s close to the money.
NOTE: I usually trade strikes that are very close to the money, but slightly out of it (which gives me the perfect risk/reward for my risk tolerance).
All in all, there’s nothing wrong with sitting on the sidelines this week.
Heightened volatility and unpredictability are to be expected. Plan your moves accordingly.
But if you do trade the post-FOMC madness, follow the rules I outlined today to increase your chances of success.
And speaking of reaching towards trading success…
Are You Ready To Take The Next Step?
Here’s the truth … I wouldn’t be a multi-millionaire if I hadn’t joined Tim Sykes’ Trading Challenge so many years ago.
And I want you armed with all of the tools necessary for success in the stock market.
So, if you’re passionate and dedicated, ready to take on anything the market throws at you, then I’ve got something for you…
My mentor, Tim Sykes, has helped traders learn to succeed for years. More than 30 of them (including me) are now millionaires.
Are you ready to take your trading game to the next level? Do you have what it takes to face the Trading Challenge?
Let’s find out…
I’m excited to see you there!