Halloween’s Fed Fade Trade Deconstructed
Today, the reaction to the Fed announcement was classic… textbook, even. It’s the spike/ reversal scenario I’ve observed (and occasionally traded) for years, and documented step- by- step in September as referenced in the pre-announcement post earlier today (see “related link” below).
As I said, the reaction isn’t always so perfect. But when it is, it’s simply beautiful.
Here’s the hand-drawn scribble I used last month to explain the trade:
And now here’s a 3-minute chart of today’s action and The Trade:
The Big Dummy is onto something, n’est ce pas?
Today, the FFT gave an entry at 54.20 on the Qs, with an initial stop at the bottom of the spike-noodle (that’s my scientific term for it), or 54.04. That’s a total initial risk, or “R” of 16 cents.
Using a simple 2-bar trailing stop, the trade was exited at 54.88, for a gain of 68 cents, or 4.25R in only 36 minutes.
For you home gamers, that means risking $320 on the Qs would have returned $1360 in the same 36 minutes.
As I’ve also said before, this trade works maybe 60 percent of the time. Perhaps 5 or 6 “Fed days” each year. But when it does (like today, and big-time in June), it’s possible to make a serious gain in only a few minutes if traded correctly.
Related link: Profiting from the Fed Announcement: The Fed Fade Trade (15 Sep 07)
As always, cheers and best of luck.