How to Trade the Fed’s News Yesterday…
By: Steve Smith
Unless you are living under a rock you’ve heard that the Fed, unsurprisingly, voted to continue with bond-buying and holding rates at near zero for the time being.
On a personal note, I think it’s misguided and stinks of politics rather than what’s best for the long-term economy. But frankly, what I think doesn’t matter. We need to trade the market we have according to the rules they lay down for us.
As the Citibank banker said, you gotta dance when the music is playing.
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To use a metaphor from our childhood days, I know playing musical chairs can be uncomfortable when the music is going faster and there are fewer chairs to sit in. But don’t worry, I can assure you that Armageddon isn’t upon us.
So how do you trade a market with ever-increasing liquidity?
First, you understand that the market is more volatile (which is why I wrote about the VIX yesterday) so we want to look at shorter-term trades.
That allows us to “stick and move” – meaning we can make small quick wins in the short term rather than getting caught up in some long-term trade that could quickly move against us.
That is exactly the strategy we started following in Options360 a few weeks ago.
The nice thing about shorter-term trades is that we never overload the boat so that when the market reverses we aren’t wiped out. With this much liquidity, the market can change direction in a dime. We saw that last year when the longest bull market in history gave way to the shortest bear market in history.
The bottom line is, lots of companies are doing fine. We just need to pick and choose our positions wisely.
Remember, it’s a bull market until it isn’t. And when it isn’t we can make even more money faster!
Taking philosophical positions is fine, but when it comes to trading don’t ever let your opinions get in the way of the facts!
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To Your Success,