FOMC Fed Meetings

How They Matter To Day Traders

Learn how the Federal Reserves System's FOMC Fed meetings can effect you as a day trader.

WHAT IS THE FOMC AND WHAT DOES IT DO?

The FOMC (Federal Open Market Committee) is responsible under United States law, and within the Federal Reserve System for making important decisions regarding interest rates and United States money supply. United States monetary policy is set by the committee, which determines certain objectives for the buying and selling of United States Treasury Securities.

Open market operations, reserve requirements, and the discount rate are all controlled by the Federal Reserve.

These three tools allow the FED to alter the federal funds rate by influencing the balances that depository institutions hold at Federal Reserve Banks.

The interest rate at which depository institutions (banks) lend federal money (balances at the federal reserve) to another depository institution overnight.

HOW CAN FOMC FED MEETINGS EFFECT DAY TRADERS?

FOMC Fed Meeting Schedule Screenshot

FOMC Fed meetings consists of twelve members and are held at eight scheduled meetings every year.

Here's my advice. Go fishing, read a book, ride your bike....anything except day trade, especially around 2:15 pm ET on these federal reserve meeting days.

During the day of these meetings at 2:15 pm ET they release their interest rate information. Generally speaking, but not always, the mornings of these FOMC meetings tend to be pretty dull and lifeless with low volatility, mainly because traders are waiting to hear the outcome of the FOMC statement and minutes during the afternoon trading session.

But, that's not the issue. The 2:15 pm report is what will cause you a problem. In a nutshell, trading at this time will wreak havoc on your account. It very often consists of extremely wild whipsaw price action.

Sure, as a day trader you want to trade volatility. And price movement is what makes you money. But, if it's crazy, whipsaw type volatility like FOMC days display, then you might be wise to step aside until another day. I'll show you what I mean.

Notice the November 3rd, FOMC Meeting day circled on the Bloomberg Calendar image above.

Now here's an example of an afternoon breakout trade that could've been made on the same day, Nov. 3rd. On any other day, this trade might of gone as planned. But due to the FOMC announcement at 2:15, wild price action in the S&P 500 Futures causes wild price action in individual stocks like AN below.

This in turn causes trader's stops to be easily hit for a loss, before proceeding higher. Price action like this in both the futures market and cash market is very common on FED meeting days.

Example chart showing effect of FOMC Meeting on stoc


Below are a couple more 10 minute chart examples from the same day to further illustrate my point.

Stock chart showing Fed Meeting causing price fluctuation Wild price moves dues to FOMC


And here's the S&P 500 itself. Would you like to trade that mess? Look at the range of that one red 10 min. candle!

Example of federal reserve meeting causing extreme price movement in S&P 500


HOW CAN I FIND THE FOMC FED MEETING SCHEDULE?

Alright, so you decided to take a day off on these federal reserve meeting days. Or, maybe you're braver than most and just want to be prepared for when the crap hits the fan.

Here's a couple links that will take you to sites that will give you their schedule.