Hello Rookie Bloggers! You may be reading this after the actual announcement comes in but this little blurb serves as commentary for any Fed announcement or really any big announcement that the markets knows is coming. It could be a brexit, a Fed announcement or really any number of things that has the propencity to either freeze or move the markets.

With this latest Fed announcement, I had read and heard from many sources that the market was either holding their collective breaths waiting to see what Mr. Powell would do or even just the way he said it or that the markets had already priced in whatever could be said anyways. If you have been around the trading game for any length of time you have probably heard the phrase “its priced in the market” and this seems to be the truth more often than not. The markets seem to have an uncanny knack for knowing what is coming along and pricing things accordingly. This is always the case there are surprises but I would say that is the exception to the rule.

So this brings us to today’s announcement. I don’t think it was much of a surprise to anyone that today’s Fed announcement was going to be centered around the current state of inflation. If you have “reading the news” as part of your daily routine then it would have been very hard not to see something related to the concerns surrounding the inflationary pressures that are currently present. This was not only talked about in the news but also watching the movement in the treasury markets could have presented clues as to what could be possibly be concerning about interest rates as a whole. The word on the street was that Powell was going to do nothing with the rates and the only thing that could really spook the markets would be the nature with which he spoke about it. So if everybody “knew” what was going to happen then why did it seem that the markets were holding out on the actual announcement? It is because of these surprises that sometimes pop up that the markets can seem to hesitate before these types of announcements.

The question becomes what do we do with our accounts when these things happen? Do we just sit on the sidelines or do we batton down the hatches or do we go on about our usual business? There is no easy answer for this question but there are some overiding principles that we can adhere to that can protect us from the adverse effects of these announcements and even the precarius enviroments that can go before them.

Whether we sit on the sidelines or batton down the hatches comes down to a simple important principle and that is the principle of reducing risk. Whenever we encounter any situation where we are extremely uncertain of how things will turn out it is always a good idea to either not play the game at all and save our ammunition for a time that the outcome is more likely to resolve in our intended favour or at the very least reduce our participation so that any adverse affects are not going to damage our ability to continue on in the future. This is our primary responsibility as traders. This can explain why sometimes before these announcements you will see a drop off in the volume of trading and this is precisely what happened in the markets the last two days before the actual announcement.

Lastly, we have the business as usual choice. This choice must be taken on a case by case basis. If you have trades that are setup and most likely going to be unaffected by a shift in the overall market then one can choose the business as usual route. To do this one must have a firm grasp on all the effects that the announcement could have and this could be challenging in determining this. However, if you have trades on in which you have limited risk and you are ok with that overall risk then carrying on is perfectly fine.

The best choice for most is probably a combination of all three choices. Part of your trading you may put on hold, like taking on any new positions and this would be akin to sitting on the sidelines. Then if you have existing positions with open ended risk then reducing that position size and ultimately the overall risk is a smart idea. Then finally as discussed above positions with fixed risk can either be left alone or even slightly reduced if the level of uncertainty of outcome is rather high.

The key to trading well is knowing what a change in market conditions will do to your positions and making sure you are prepared for that change even if you dont know for certain that its coming.

Trade Well,

Coach Holmes