c08 JWBT016-Busby September 30, 2008 14:0 Printer: TBD
Making Money with Bernanke 105Trading the Fed is exciting and, for me, profitable. As I prepare for each
of those FOMC meetings, I feel like I am waiting for Santa to slide down
the chimney. It is a trade that I anticipate with visions of dollar signs in my
head. You, too, are invited to watch me trade live on the DTI chat. Just visit
http://www.dtitrader.com on Fed day and see the show.PEARL 13
The Model “T” provides opportunities to trade stock, futures, and options for
three days after the Fed announcement.Review
Various news events offer traders the chance to make money. One of the
biggest regularly scheduled news events is the Fed news. Due to the impor-
tant role that the Federal Reserve plays in regulating monetary policy, their
actions have tremendous consequences. One of the most powerful tools
available to them is their ability to set the Federal funds rate. This rate
is important to industry, business, and consumers because it determines
the cost of borrowing money. Therefore, when rate changes are made, the
markets respond.
I generally make two Fed trades. The first is the Corvette Trade, and
it is made immediately following the news at 1:15PM. This is a quick trade
and I am in and out of it in minutes and maybe seconds. I trade multiple
contracts and plan to average a few points of profit from each contract. I
may leave money on the table but my goal is to take some money out of the
market for myself. Once the initial surge is over, I am out of the action and
on the sidelines.
I wait until 2:00PMbefore making my second trade, the Model “T.” By
the time the Model “T” is executed, traders have had about 45 minutes to
evaluate the news and respond in a more rational way to it. I analyze prices
using the benchmarks described in this chapter. Then I respond appropri-
ately. I may keep this trade until the exchange closes at 3:15PM.