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Fed Day 8/8/06 Market Profile Graphic


Here is a Market Profile Graphic for the E-mini S&P500 from the FOMC Fed Day Meeting 8 August 2006. The announcement to leave the rates unchanged took place at 14:15 EST which is half way through the M bracket.

I have colored the M bracket red in order to show the typical volatility that you see on a Fed Day. The (vertical) histogram that develops in the brackets preceding the meeting is typically narrow and uniform as seen on this day. The M bracket in this case moves goes both above and below the high and low established during the morning.

1287.75 M
1287.50 M
1287.25 M
1287.00 M
1286.75 M
1286.50 M
1286.25 M
1286.00 M
1285.75 M
1285.50 M
1285.25 M
1285.00 M
1284.75 HM
1284.50 DEGHM
1284.25 DEGHM
1284.00 DEGHM
1283.75 DEFGHIMN
1283.50 DEFGHIMN
1283.25 DEFGHIMN
1283.00 DEFGHIJKMN
1282.75 DFGHIJKMN
1282.50 DFGJKLMN
1282.25 DJKLMN
1282.00 DJKLMN
1281.75 DJKLMN
1281.50 DLMN
1281.25 DLMN
1281.00 LMN
1280.75 LMN
1280.50 MN
1280.25 MN
1280.00 MNP
1279.75 MNP
1279.50 MNP
1279.25 MNP
1279.00 MNP
1278.75 MNP
1278.50 MNP
1278.25 MNP
1278.00 MNP
1277.75 MNP
1277.50 MNPR
1277.25 MNPQR
1277.00 MNPQR
1276.75 MNPQR
1276.50 MPQR
1276.25 MPQR
1276.00 MPQR
1275.75 MPQR
1275.50 MPQR
1275.25 MPQR
1275.00 MPQR
1274.75 MPQ
1274.50 MPQ
1274.25 MPQ
1274.00 MPQ
1273.75 MPQ
1273.50 MPQ
1273.25 PQ
1273.00 Q
1272.75 Q
1272.50 Q
1272.25 Q
1272.00 Q
I have not yet compared this profile to other Fed Days but I believe that this is typical.

Given this information (that the high and low of the morning's range is frequently broken), is there a strategy to fade the first break-out and target the break-out on the other side? If so, what sort of stop would you be looking at and when you got burnt, how badly were you burnt on these setups?

I am assuming that this type of strategy/setup is not often tested or examined because FOMC Fed Days happen 8 times a year and is therefore a relatively rare occurrence. Some traders take the day off and don't trade. I remember reading that Mohan doesn't trade Fed Days for example and recommends that his subscribers don't trade these days.

However, as discussed in other topics, if we have a lot of high probability strategies that happen rarely, then we may have enough of them to find a setup each day.

How many trading days are there in a year? 52 weeks x 5 days = 260 days (less say 7 holidays and 3 very low volume days around holidays) so let's say 250 trade-able days a year.

If each rare (yet high probability) set-up that we find happens 8 times a year (like the FOMC Fed Day announcements) then we would need (250 / 8) 31 setups to give us an average of 1 setup per trading day. 31 is a big number when it comes to setups because that's 31 rules (some complex) that you have to program your system to watch or watch manually.

The "Fed Day Setup" is "easy" to be reminded about. You can use a calendar reminder like Yahoo's calendar to email you the day before Fed Day so you're ready for that.

Other setups, for example when the market opens on the "wrong side" of a single print created the previous day, would require complex programming to automatically see that or time consuming manual work to check that at market open each day.

Just some thoughts...