Making Money with the Fed

05/27/2008 12:00 am EST


Tom Busby

Founder and Trader, DTI Trader

For the past four years, I have traded the FOMC (Federal Open Market Committee) interest rate announcement live at 1:15 pm CT on "Fed day". Yesterday we made two trades, one I call the "Corvette" trade the other I call the "Model T" trade.  As the name depicts, the Corvette trade is quite fast and the Model T trade is a slower trending trade.  The key to execution in either trade is technology.  You have got to be able to click on a mouse rather than using a phone to call the orders in.

This past Fed day (April 30, 2008), I went short the e-mini S&P future at 1:16:04 pm CT on the Corvette trade (fast and furious), and was out in less than a minute with a win. This particular trade is a "time" trade.  I look to be in and out of this trade within five minutes after the announcement is made using a four point protective stop.  I have no pre-determined expectation of the points I make on this trade nor how much money I make; it is simply just a time based trade.  Chart one shows the move of the market at this time.

Chart 1 (1 Minute Chart of ESM8)

Later during the Model T trade, I went short the e-mini Dow future shortly after 2:00 pm CT.  This trade lasted about twenty minutes but paid in excess of 50 points.  Unlike the Corvette trade, this is a trending trade that I will try to hold into the close.  When I enter into the trade, I use a twenty-two point stop and trail it as the market moves in my direction.  Typically I will move my stop twenty points for every twenty points the Dow moves in my favor.  Chart two shows the Model T trade on a ten minutes chart.

Chart 2

The set-up on both trades is based on two key items: time and pivot.  The pivot on the e-mini S&P future was 1400.00 (this is where the market was trading just before the Fed announcement).  Since the e-mini S&P was trading below the pivot, I was able to capture the Corvette and the Model T to the short side; both for a win.

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