The Trading Game on FOMC Day!

Today we’re going to talk about a quick trade I placed using the trading game from ROI Trading Academy.  If you haven’t checked it out yet, it’s a fun way to practice your trading skills without risking real money.  Best of all it’s free!  The link is in the description.

There was no excuse to make money today if you were following our Slack.  You were alerted at 7:30am that, aside from the FOMC event ahead, it looked like a risk-on day, which means we should be bullish of stocks.  You were also told exactly what to expect from the FOMC meeting, in that a hike was expected, but some dovish rhetoric may be in store as we head toward the neutral rate.

Sure enough, once the stock market opened, they were off to the races.  Although it incurs a bit of risk, I wanted to capture this risk-on sentiment before the markets waned in anticipation of the FOMC event.  The product I chose to trade was an ETF that tracks the S&P 500 called SPY.  The strategy was to enter on a dip, with a narrow stop.  So, I placed a limit order using the ROI’s Trading Game.  A friendly confirmation message from ROIbot confirmed that the trade went through.

Sure enough, the market dipped and I entered the trade, and had just enough momentum to take me to my profit target.  However, after the order had completed, note that stocks formed a neutral day, characterized by strong moves in both directions.  If you’ve taken our market profile course, you know that this is very common before a big data release, and the FOMC rate decision is about as big as they come.

A rate hike of 25 basis points came in as expected, but the markets picked up on some unanticipated hawkishness in the rhetoric.  In fact, instead of adjusting the verbiage on being accommodative, they removed it all together. Our Slack users were immediately alerted to this, so there were no excuses not to catch it!

Initially, stocks rallied, which could have happened for many reasons.  If you trade the FOMC minutes, you have to battle algorithms and other traders who may have not heard the statement you did, even if you were right after all.

However, after the markets digested this data, we saw the anticipated correction at the end of the day.

After market close, I got a friendly message from ROIBot containing my profit for the SPY trade and my net profit for the day.