If you're a day trader looking to profit from trading on volatile FOMC days, then you've come to the right place. In this guide, we'll explore how to effectively day trade options on FOMC days using key strategies and techniques.
First, let's briefly review what makes FOMC days so volatile for traders. The Federal Open Market Committee (FOMC) is a group of individuals responsible for making monetary policy decisions for the United States Federal Reserve System. These decisions often have a significant impact on the markets, resulting in increased volatility. As a result, trading on FOMC days can present lucrative opportunities for day traders.
So, how can you effectively trade on FOMC days? Here are some key approaches to consider:
Focus on the Index: S&P500 or the NASDAQ are great options via ticker symbols SPY, SPX, or ES. Our members in the Trader’s Thinktank are usually trading SPY or SPX options and ES futures.
Set Your Levels Using Technical Analysis: Start by analyzing the market using technical analysis to identify key support and resistance levels or supply and demand zones. When setting levels, it is usually best to follow a multiple timeframe analysis approach. This will help you determine potential pivots, which can serve as entry and exit points for your trades.
Choose the Right Options: When trading options on FOMC days, it's crucial to choose the right options to trade. Liquidity is not an issue if you are focusing on the index, but you likely want to avoid same-day expiring (0DTE) options and strikes that are out-of-the-money. These contracts involve way too much risk. Opt for at-the-money contracts with at least 1 day till expiration, or better yet, trade ES (futures) so you don’t have to worry about theta decay or contract selection. Futures give tighter risk control and in many ways can be a superior trading product for volatility events.
Develop a Trading Plan: Develop a trading plan that takes into account the market's volatility on FOMC days. We have commented before that new or developing traders can and will blow up trading through FOMC. With any volatile news event, traders are prone to chasing. The best way to prevent yourself from chasing a move is to only trade setups near your levels. This allows you to determine risk points prior to taking a trade. Always determine your entry and exit points, stop loss levels, and profit targets prior to getting involved.
Trade With a Team: Placing yourself in an environment of like-minded professionals is one of the best ways to achieve your desired outcome. With high-volatility market moves, it is very helpful to be trading with people who have years of experience extracting profit from these events. If you’re ready to cut through the noise and navigate the markets with serious traders, join us in the Trader’s Thinktank.
Always Wait for a Setup: It is wise to avoid trading the initial FOMC reaction. Usually, that first knee-jerk move is hedging being unwound, and that move will likely reverse. Once the dust has settled, watch for your intraday setup to develop. Take note of key times: The rate announcement is always at 2 PM EST, which is when you will see the initial reaction. The press conference is 30 minutes later at 2:30 PM EST. This is another market-moving event, and usually, the real move comes during or after this press conference and not the rate decision announcement. Do not feel pressured to trade through FOMC if your setup does not develop. FOMC volatility usually carries into the following trading sessions.
Live trade recap: How we profited trading through fomc
By following this approach, you can effectively day trade options or futures on FOMC days and maximize your profit potential. Remember to stay disciplined, stay focused on your plan, and always watch price action.
In conclusion, day trading on FOMC days can be a profitable trading opportunity for prepared traders with a plan. With the right mindset and approach, FOMC days can present huge opportunities.