Trading the Fed-Rate Decision

On Wednesday the Fed will conclude its 2-day meeting and announce its latest interest rate decision. The rates are likely to remain unchanged, so the focus will once again be upon the accompanying policy statement for clues on if and how its current policy may shift over the course of the year.

A typical Fed-announcement day begins with strength. Volume then drops off as activity slows in the early afternoon heading into the announcement. This takes place at approximately 2:15 ET. The reactionary moves usually come in three waves and on two time frames. There is an initial reaction, a counter-move that can be stronger than the initial reaction, and then a third shift that typically turns the market back towards their initial bias. This plays out on a 1-2 minute time frame and then repeat on the first time charts whereas the first 5 minute move consists of the 3-wave sequence from the 1-2 minute charts. Use extreme caution on the smaller time frame reactions immediately following the announcement because pricing data can be unreliable and your ability to execute at a desired price level will be hindered by the spike in volatility.

Note: In addition to earnings and economic reports, something else to keep an eye on in the coming week is a tentatively scheduled on the topic of President Obama's proposed "crackdown" on big banks and their investment practices.