Happy Friday, Evolvers!
The stock market looks to be closing out the week on a high note, with the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) up more than 1.3% on Thursday.
It’s all been coming down to the Fed as traders have been waiting to see what Jerome Powell would do and say at this week’s Federal Open Market Committee (FOMC) meeting…
And bulls got the answer they were looking for as the Fed announced it would finally pause interest rate hikes after ten consecutive hikes in a row!
Today, we’ll talk about the implications of this pause and what it means for the overall market, your trading, and a variety of other factors.
It’s Friday, so it’s time for our Q&A. Keep reading and I’ll answer your questions…
“Are you considering trading any setups related to the Fed’s decision? Why or why not?”
I recently mentioned that I’m planning on taking a short break from options trading. So, I probably won’t trade anything related to the FOMC meeting.
But I will say that the finest traders I know are incredibly picky with the trades they put on.
In contrast, newbie traders tend to trade far too many setups and patterns. This can lead to mental overload, confusion, and worst of all … painful losses.
I’m hearing a lot of inexperienced traders talking about how they’re going to trade the Fed decision…
But most of these individuals shouldn’t be playing this volatility at all…
If you’re not an expert on macroeconomics or monetary policy, don’t feel like you have to trade just because many other traders are doing so.
This needs your attention…
The price action following this year’s previous FOMC meetings has been wild and unpredictable.
The market has rallied and tanked due to prior interest rate decisions, making it difficult to predict what will happen over the next few days (or weeks).
In other words, without having a firm conviction one way or another, I’m not gonna trade just because there’s a volatile catalyst occurring.
By early next week, we’ll have a much better idea of whether the market is forming into a near-term, blow-off top … or surging into a new bull market.
Both are possibilities…
So, be patient. Don’t worry about what other traders are doing. And don’t jump the gun until a specific setup checks all of your boxes.
“When I’m green on an unrealized options position, I find it often quickly goes red. But when I’m red on a position, it rarely turns around and goes green. What am I doing wrong?”
Well, it’s critical to understand two facts first:
- How quickly the value of options contracts can move…
- That the vast majority of options contracts expire worthless…
You’ve gotta be extremely nimble in the options market, ready to cut (or add to) your position at a moment’s notice.
If you’re regularly noticing your positions going from green to red, my first thought is that you’re not booking profits quickly enough.
If you follow my trading, you’ll notice I’m relatively merciless about booking profits when my positions are 50%-100% in the green.
Furthermore, I’ll often sell half of my initial position somewhere in the middle of the pattern to lock up profits…
Check this out…
If your position is up 100% and you sell half, the rest of your trade is risk-free! To use a casino analogy, you’re playing with ‘house money’ at that point.
Ultimately, the profit-taking steps I take come from years of experience.
I was in your shoes far too many times in the past, watching contracts go from double-digit winners to marginal losers in a matter of minutes (or seconds).
Again, the prices of contracts can change in a heartbeat. This is why options can be so juicy, but also why they’re so risky. It’s a double-edged sword.
So, try to take your profits earlier in your trades. And don’t be afraid of selling a portion of your position while holding onto the rest.
And if you want to add an incredible new tool to your trading arsenal, listen up…
On July 22nd at 8 p.m. Eastern, my good buddy (and millionaire trader) Tim Bohen is sitting down with a certain trader and tech entrepreneur who patented a unique system that’s produced an astounding 88.46% win rate over the last 6 months alone!
Are you sure you want to risk missing out on this FREE event?! I didn’t think so…
Final Thoughts
Have a great weekend Evolvers!
I know it’s not the most exciting game plan in the market, but I’m sticking to my script of being patient and sitting on the sidelines for now.
Study hard over the next few days and I’ll talk to you on Monday!
