Good morning, tradersâŚ
Jeff here.
Yesterday, the Federal Reserve concluded its two-day Federal Open Market Committee (FOMC) meetingâŚ
The FOMC plays a pivotal role in the U.S. economy by setting monetary policy, which directly impacts interest rates, causing broader implications for financial markets.
While Powellâs tone was mostly positive, most of the committeeâs projection numbers are moving in the wrong direction.
Hereâs what we learned:
- Rates are staying where they are, no shocker there. But under the hood, the big-picture forces that move the market are starting to show some cracks.
- The benchmark borrowing rate is steady between 4.25% and 4.5%, the same level since December.
- However, the FOMC lowered its economic growth forecast and slightly raised its inflation outlook.
- Plus, policymakers now expect the economy to grow at just 1.7% this year, a 0.4% drop from their previous estimate in December.
Ultimately, what traders care about is inflation (and how it might influence the Fedâs interest rate decisions).
And while inflation is sticky, itâs been going in the right direction (unlike these other Fed projections).
Weâve gone from over 9% inflation in the CPI (June 2022) to 3% (currently):
A worst-case scenario would be if GDP growth slows while inflation stays sticky, thatâs called stagflation â something the market is getting increasingly worried about.
These broader economic factors are crucially important right now. If you arenât closely watching these macro indicators to gauge the big picture, youâre trading with blinders on.
And thatâs especially true this week when itâs all about the Fed.
With that in mind, here are three key tips for trading the post-Fed price action like a proâŚ
Size Down Your Positions
More than anything, I recommend sizing down and trading smaller positions this week.
Why? Because this market can flip at any moment, and we donât want to be left holding a large bag at the wrong time.
Smaller positions give you more wiggle room to make mistakes (especially if youâre trading a small account).
The most important thing is that you go on to trade another day. Never risk more than youâre willing to lose.
I canât tell you how many traders Iâve seen blow their entire careers on a few poorly-sized trades.
WARNING: Sizing too big into a loser is a much bigger mistake than sizing too small into a winner.
Think about it like thisâŚ
If youâre unhappy after a winning trade because you didnât bet more money, thatâs greed rearing its ugly head.
You should be excited about your strategy working â not disappointed that you didnât make more money.
Be very deliberate with your position sizing and youâll be a better trader for it.
Then, you should also be very deliberate with something elseâŚ
Book Profits Quickly
Suppose youâre lucky and disciplined enough to find yourself in a five-star setup, where your contracts are surging.
In that case, itâs time to immediately identify another price target â the level where youâll book profits.
If a tradeâs going well, greed is your worst enemy. Youâve gotta fight the urge to hold out for unrealistic price targets.
To use a soccer analogy: Be satisfied scoring a double ⌠donât injure yourself going for a hat trick.
This is especially true during a week like this one when major Fed catalysts can rock the market in minutes.
I want you to be greedy with your gains this week. For exampleâŚ
If youâre up 50% on an options trade, donât hold out for 75-100%.
Lock your profits up and move on to the next play.
This is easier said than done. Thereâs a constant war in tradersâ heads between holding runners and booking profits quickly.
But this week, with the Fed dominating the narrative, itâs more important than ever to grab your unrealized gains while you still have them.
Focus on Your Game Plan
Too many traders fail to form a solid game plan before entering their tradesâŚ
Why? Because theyâre impatient, greedy ⌠or both.
Every successful trader I know has their game plan prepared before they enter a trade.
On the contrary, many newbies attempt to throw their entire account at options trade, dreaming of making millions in a single trading day.
(Just look at r/WallStreetBets for thousands of examples of this mentality.)
But the vast majority of these wild fantasies will never come trueâŚ
You canât take more than the marketâs willing to give. Youâve gotta choose your trades carefully and be consistent with your game plan.
So, what details should go into your trading plans? Hereâs what I always includeâŚ
- Key price levels (support and resistance)…
- Any upcoming catalysts that could affect the share priceâŚ
- Position size (the number of contracts I want to trade)âŚ
- Profit target and risk levelâŚ
- Potential entry and exit pricesâŚ
If you make a trade without knowing those five things, youâre practically begging to lose.
But the opposite is also true. So, make sure youâre always forming an airtight game before entering any trades.
Letâs see how the market reacts to the Fed over the next few days.
Happy trading,
Jeff Zananiri
P.S. In a market this unpredictable, thereâs no better strategy than Burn Notice tradesâŚ
Theyâre quick, overnight options plays that wonât overexpose you to broader market risk.
If you want to understand exactly how (and why) these trades are perfect in this environmentâŚ
Join Danny Phee for a LIVE BURN NOTICE WORKSHOP ⌠This SUNDAY, March 23 at 1:00 p.m. EST
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*Past performance does not indicate future results
