Trade to Win - Proven Strategies to Make Money

c08 JWBT016-Busby September 30, 2008 14:0 Printer: TBD

Making Money with Bernanke 103

The Model “T”

At 2:00PM, I take another look at prices. If prices are continuing to trend

in the direction of the Corvette, I execute another trade. If the Corvette

was a short, I want prices still moving below those benchmark levels that I

recorded moments before the Fed announcement. With that confirmation,

I take another short position. On April 30, 2008, that is exactly what I did. I

traded the Dow futures and went short at 12,889. I quickly took a couple of

points of profit from part of the position and held the remainder. I exited

the last of my Model “T” contracts at 12,836 for a gain in the mini Dow

futures of more than 50 points per contract. Figure 8.3 is a five-minute Dow

futures chart that shows the Model “T” trade on April 30, 2008.

Remember to exercise a great deal of caution when trading Fed news.

Prices may move quickly, and if you are on the wrong side of the action, it is

easy to lose thousands of dollars in nothing flat. Only experienced traders

who have the skills to exit positions quickly should try this maneuver.

Another example of this trade in action is March 18, 2008. On that date

there was a great deal of speculation about the Fed’s action. Truth is that

there is always a good deal of conjecturing, but with the mortgage crisis in

the news and with the Bear Stearns fiasco in the forefront, traders expected

a huge cut, and many wanted no less than a full point of relief. The Fed

FIGURE 8.3 A five-minute chart of the Dow futures during the Model “T” on April

30, 2008.