Trading FOMC Days | Podcast Episode #374

0:07
Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance. Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market, and I’m ready to show you how. Hey, everybody. This is Ryan Mallory with Swing Trading the Stock Market. In today’s episode, we’re going to talk about the FOMC, the Federal Open Market Committee and the impact that they have on the markets.

0:41
Every six weeks, every six weeks, you got the FOMC statement that comes out at 2:00 PM Eastern, followed by about 30 minutes later, the FOMC presser. Both of them, I detest. Both of them I hate, but it’s a part of the markets. We’re going to talk about it. We got an e-mail from a guy who’s really just frustrated by these that he just can’t get a handle on how to trade these FOMC days at Rex’s portfolio and he wants me to talk about it.

1:07
So in order not to tell his real identity, I give him a fake or to redneck name. I’m going with Vern today. And Vern writes, hello Ryan, I’m on the brink here. No kidding. I mean, I’ve weathered a lot of storms in the trading world, but these FOMC days they are my Achilles seal.

1:28
It’s like I have a neon sign over my head said about to make another bad trade. Sometimes I feel like I have that every day. But anyways, he goes on to say every time there’s an FOMC statement followed by that press conference, I feel like I’m blindfolded on a roller coaster.

1:45
Either I’m jolted out of my positions by unpredictable price swings, or I get overzealous jump on a move and end up watching the market make a U-turn right in front of me. It’s madding. You’re my only hope right now, Ryan. I’m wondering if this whole trading thing is just not for me, or at least not on the FOMC days.

2:02
How do you handle FOMC statement days? Is there a strategy? A mind shift? Is there anything? Honestly, if I can’t figure out a way around this, might as well pack it all up. Any advice would be more than appreciated right now. Sincerely, Vern. Man, that’s a heavy e-mail. Vern ain’t doing too good.

2:17
Guys, any case, I do get the frustrations of the FOMC statement. If you followed me on Twitter or, yeah, pretty much Twitter, I would say that I’m pretty vocal about my disgust for the FOMC. I think they’re just an absolute red stain on the US economy, on the country.

2:35
I think that they have created so much bad policy for the United States. I mean, I think we saw it at its worst in the 2008 Great Depression and then again during the COVID crisis where they just make horrible, horrible policy decisions.

2:50
And it really just stems back from the fact that they refused to let this market to go into a recession. They don’t want it to. But the reality is, is that you have to have recessions. You got to have business cycles. Part of capitalism is business cycles. And right now, if you go back to 2008, the Fed has implemented a policy of no more recessions, no more business cycles.

3:10
It’s only bull markets. And that’s horrible because there’s not a real opportunity for legitimate price discovery in the financial markets. I mean, look at what all these stocks have done. Now they can say that we’re not going to let there be another recession ever again and they haven’t actually said that, but their actions suggest otherwise.

3:30
And so they can do all the things to keep it from happening, but all they’re really doing is just kicking a can down the road. And right now we’re seeing a lot of that kick, the can end of the road start to emerge. We’re seeing the end of the road where we’ve got unsustainable amounts of debt and we have inflation.

3:45
And in order to tame the inflation, you got to raise the interest rates. But when you raise the interest rates, you’re creating incredible amounts of stress on the economy because all of a sudden you got to finance all this out of control spending at ridiculous levels. And then if you go into a recession, what do you start doing?

4:01
You start doing stimi checks and you start doing money ejections into the economy. And they think that they what they’re doing is always helping issues, but it’s always destabilizing the economy even further. I hate the Fed. I despise them. If you look at my Twitter feed for instance, there’s a FOMC statement coming up.

4:18
I’m sure to not have pleasant words for them. I do not like them. I despise them. And I think every chairman that we get or chairwoman, I guess cause we had Janet Yellen too. They only get worse. They only get worse. They get more stupid, they get more egotistical.

4:35
They are the worst part of government in my opinion, along with all the other parts of government. OK, so this isn’t about me just ranting about the FOMC, even though I could do that for multiple episodes. But FOMC day, that’s where they come out with the FOMC statement talking about the interest rate that happens every six weeks.

4:57
It’s probably one of the hardest days to trade from an intraday standpoint, especially when in the eyes of the market rate policy and future rate decisions are very, very important. So there is times where you’ll go through, usually in a bull market where the FOMC days are not that big of a deal.

5:15
Yes, there’s still a reaction to them, but by and large, it’s not a significant reaction. Now going back to 2022 and here in 2023, yes, it’s much more significant because much of that time has been spent raising the rates and we don’t know if he’s done yet if they’ll keep raising them in the future.

5:33
And then you have inflation that’s not being tamed. So there’s the belief that he’s going to have to raise interest rates even more. So yes, right now it takes on a whole other meaning. And from an intraday standpoint, it’s almost like earnings being dropped on a company intraday and you’re having a trade around them.

5:49
Now, is it to the same extreme, like if a company like Meta, for instance, which we’ve seen have some really horrendous earnings in the past where it’ll drop 20%, are we looking at those kinds of moves? No, no, we’re not looking at those kinds of moves. But you can see 2 and 3% swings in the market and you can see them in multiple directions throughout the course of a trading day.

6:06
And like I said, there’s multiple moves. And one thing I will say is that oftentimes that first and second move is very unreliable. You might see a sharp move to the downside and then you’ll see another move back to the upside. And this is all happening within minutes, if not seconds at times.

6:22
And then you’ll see that move even reversed back to the downside. In the meantime, you’re getting stopped out of positions left and right, and that’s frustrating. There’s nothing worse that I want to have happen than go into a FOMC statement with my stop loss about to get triggered or with price within like 1% of a stop loss.

6:39
I hate that because the strong likelihood is is that I will get stopped out when that’s the case. Not always, but there’s a very good likelihood that I will. So don’t trust the 1st and 2nd moves. Even if it ends up being that that first move was the legit move and it never looks back, fine, so be it.

6:57
Let the market do its thing. Moving on, but what we have to make sure as traders that we don’t get caught up in is the fact that we need to be part of every intraday swing that the market takes place in. We don’t even have to be part of every move that happens on the daily chart.

7:12
We think that we do. We think that the market can’t function without us, and then we start feeling like it’s a reflection of ourselves if we’re not part of every move when sometimes there just wasn’t the right opportunity to get long or short based off of the move that followed.

7:23
There’s a lot of trade setups that I like but that I can’t take. Why? Because the trade setup doesn’t offer me the right reward risk ratio, or it’s just moved too fast for me to go chasing after, even if I think that it’s going to keep moving higher.

7:37
Because at the end, what I really care about is what the risk side of the trade is about. If I can’t keep the risk contained, there’s no reason for me to trade long. Even if I have like a 99% confidence rating of the trade working out, it still doesn’t make sense for me to go do that if the risk is not in my favor.

7:54
The other thing too, and I really despise the Fed for doing this, and I think it was with Bernanke where it started, they wanted to do this whole let’s do a press conference every other meeting. So essentially it was every 12 weeks and they would use those meetings for their big decisions. So the FOMC statement in between usually wasn’t that big of a deal.

8:13
And then all of a sudden Yellen comes along. And I think it was Yellen that decided to do every meeting now, for whatever reason, and I don’t know why, this is every person that gets appointed to the FOMC chairman position.

8:27
They might have the worst voice in the world. They have just a horrible voice to listen to. And I know I’m… I’m kind of picking at them, making fun of them. I try not to, but they are horrible to listen to. It’s like sandpaper. Janet Yellen was mind boggling awful to have to listen to during her presser, Jerome Powell…

8:46
It’s like listening to a robot, a very sheepish robot, a robot that’s like scared of his own shadow. Ben Bernanke wasn’t too bad. But the point is, they come up with these pressers and it’s bad enough that we have to trade through the FOMC statements and try to figure out what they’re saying and what they’re implying there.

9:03
But then the pressers, they usually just muddy the waters even more. Jerome Powell is a perfect example. He goes into his presser and he almost like it’s he’s trying to undo everything that he just said in his statement.

9:19
I kid you not. He will go 180 degrees opposite of what he says in a statement. And then it’s like they have a play by play in their ear of the stock market. If the stock market starts to drop, they’re going to start trying to say, you know, little sweet nothings to the market to try to goose it back up to the upside.

9:34
And they all act like that. They don’t care about what the stock market does or how their policy decisions impact the stock market. I would say that’s a complete bogus lie. That’s all they care about is the stock market.

9:47
So you get the presser, you get the FOMC statement. I told you don’t trust the first couple of moves of the FOMC statement, just more from a risk management standpoint. You can get into very avoidable losing trades by jumping into the first couple of minutes of that release.

10:02
You don’t want to do that. And then you got the presser at 2:30. So it’s like where the heck do you ever get long at? It’s very hard. Most of the time I don’t make any trades on the FOMC day and it’s a little bit frustrating, but there’s a good reason for that.

10:17
It’s very difficult to manage the risk on these days. And so before, without the presser, it was a lot easier. You’d have the statement come out, you let price settle down a little bit. Presser, you don’t know what these people are gonna ask them.

10:28
And I will say this, most of the time they’re softball questions. These people, unlike what you see with some of the White House press briefings or if it’s a member of Congress, where they’ll ask hard-hitting questions at times. And I’m not saying they always do, but at times you’ll see some, sometimes you’ll see some back and forth banter going on in the White House press room.

10:47
Usually it’s like one or two reporters that are usually out to try to catch the president, regardless of what party that president’s in, try to get him in a aha moment. But with the FOMC statements, it’s just softball question after softball questions.

11:00
Like, tell us again, Jerome, how do you pick out the tie color for each FOMC statement? We noticed that you like to wear purple a lot. Could you expand on that reasoning for why you wear a purple tie? Oh, Jerome, full of knowledge and wisdom, could you explain to us why you were so correct and so right about raising interest rates again?

11:17
I mean, that’s the kind of attitude they take. They’re very intimidated by the FOMC chair. I’m not going to say Jerome Powell. I’m saying whoever’s at the head of that Fed, they’re always intimidated. It’s like they’re maybe they’re not sound in their own economic theories. They never took a Macroeconomics 101 class and so instead of actually asking legit hard-hitting questions, I would love for them to let me ask questions to Jerome Powell.

11:41
I will gladly do it if they ever give me the chance, but they won’t. So trying not to go off. The problem with this podcast is that I have strong opinions about the Fed and I’m being asked a question about the Fed. So I’m trying to stick to the script here because I actually do have like key points that I want to make.

11:58
But the big part about the FOMC presser that follows the statement is that it creates a whole other minefield. You don’t know what they’re going to ask. They’re going to ask some questions. Most questions that’ll be like little softballs, but then he can also answer them in a way that we weren’t expecting or nobody even had on their bingo card for it to be answered in that manner.

12:19
And so when he does, he creates more volatility in the market. I have found that the presser is almost as dangerous, if not more dangerous to try to trade through than the actual statement itself. The statement comes out, you read it, you can almost instantly consume it. With the presser, it’s just question after question and you’re going on for like 45 minutes to an hour.

12:38
You don’t know what he’s gonna say, and sometimes he doesn’t even like plan to say some things and they get taken completely out of context. So in the case of Vern, where there’s a lot of struggle on these FOMC days, if Vern’s like on the verge of wanting to quit his trading because of this, which he implies, if it’s only once every six weeks, just go ahead and stop the trading on FOMC days.

12:58
Just don’t do it. I get if you’re going into the trades, like I will go into the days of the FOMC days with positions on hand, I’m not going to sell out of them just because it’s FOMC day. Now, if I’m like in a $100 stock and it’s a half percent or maybe even less, let’s say it’s like one quarter of a percent from being stopped out, I might go ahead and get out of that trade.

13:20
Because if there’s a wild swing from the initial reaction that goes against me, and oftentimes there is because there’s swings in both directions, then my stop’s gonna get hit and there’s a good chance that there’s gonna be a lot of slippage on it because there’s so many people trying to get out at that very instant.

13:36
And so if I have a stop loss at 95, I might be getting out at 94 or 94 and a half if it’s a pretty liquid stock. And I don’t want that either. I don’t want to expand my risk. So if you’re really close to the stop loss, it’s not the worst thing to go ahead and just get out. You can even get out and get back in after the FOMC statement.

13:52
People ask me about wash sale rules. I get that. For me personally, I don’t really trade based off of wash sale rules. I trade to make a profit. So, and to manage the risk. The other thing I would recommend, and it doesn’t get talked about a lot, is the day that follows the FOMC day.

14:09
If you have a really strong FOMC day, let’s say the market just takes off because of it. I’ve seen it before where the market will digest what they just rallied off of and the next day they sell off hard and it’s because all of a sudden they realize they probably weren’t rallying for the right reasons on the day of the FOMC statement.

14:26
So the next day you get a hard reversal. So you want to be mindful of that as well. I’m telling you, FOMC days, they’re absolutely annoying. They can even be absolute train wrecks as well. But one thing that’s not a train wreck is swingtradingthestockmarket.com, swingtradingthestockmarket.com

14:44
You’re gonna get all my stock market research each and every day. That’s going to include videos of updates on the big tech stocks. Also, on the market as a whole, you’re also going to be getting updates that include my daily watch list of stocks that I’m looking to trade each day, plus my bullish and bearish master weekly watch lists too.

15:00
So check all that stuff out. There’s a lot of good stuff. I also do watch list reviews. You can’t beat it, so check that out. swingtradingthestockmarket.com. You’re supporting this podcast in the process, so we’ve covered a lot here. I’ve done some ranting, so forgive me if that annoys you. I do not like the Fed. I hate the Fed.

15:17
But I also wanted to explain some things when it comes to FOMC statement too. Because in the case of Vern here, he’s ready to just throw in the towel and I don’t want him to do that. I want him to keep pushing forward. FOMC statements, like I said in the very beginning, probably one of the hardest days to trade from an intraday standpoint.

15:35
Even in the days that follow, particularly the following day, you can still have a pretty significant sell off that reverses whatever happened on the FOMC statement day. If there was a good rally, the moves, they’re not legit. At least on the very beginning. You can have 1, 2, 3, 4 wild swings before the price ever really settles down.

15:53
In the meantime, you’re getting thrown all over the place, getting in when you should be getting out and getting out when you should be getting in. And that’s also a very difficult thing to try to trade through and you want to avoid that.

16:09
The other point that I would make, and I haven’t made this one yet, is that in major crises, if you’re seeing what looks like everything just starting to unravel, whether it was like 2020 COVID or the regional banking crisis back in March or if it’s the 2008 Great Recession or if it’s the taper tantrum in 2018, the Fed’s working against you.

16:26
If you’re trying to short the market, the Fed’s working against you. And that could be also very difficult because they’re your worst enemy. You look at what they did in 2020 when they just overnight dropped the rates down to nothing and flooded the whole system with money. Yeah, that was kind of a bad day to be short on the market.

16:42
If you go back to the regional banking crisis where they started the lending program for the banks to be able to swap out their treasuries, that put in a bottom for the market’s freefall there, they worked against you. They’re always doing things that short term work against you. Long term works against the welfare of everybody.

16:58
So you want to make sure that you realize, if things are starting to fall apart in the economy, don’t discount the ability of the Fed to step in and try to just ruin any kind of short position you might have that’s benefiting from an economic meltdown.

17:13
If you enjoyed this podcast episode, I would encourage you to leave me a 5-star review. I really do appreciate those. Send me your questions: ryan@shareplanner.com. I do read them all and I make episodes almost out of every single one of them. Plus sign up for swingtradingthestockmarket.com. You’re going to get a lot of really good research each and every day. Thank you guys and God bless.

17:32
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17:50
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18:06
If you have any questions, please feel free to e-mail me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.