As evidenced by today’s intraday price action, you’d think the market either had schizophrenia or was potentially bi-polar.  Once the decision to hold interest rates unchanged at 2%, the market swung sharply four times before settling down for the close.  Was there any chance of profit in this volatilty?  Let’s look.

The NASDAQ QQQQ ETF:

At first glance, it looks like a jumbled mess.  The NASDAQ gapped up and then appeared to be forming some sort of trend day, and we had the expected major price consolidation prior to the actual decision at 2:00 EST.

Price then broke the consolidation patterh and surged to the upside, happy at the decision.  But like I said earlier today, be sure to parse out the words and meaning that was spoken, especially if the Fed spent too much time talking about inflationary concerns.

As such, the markret swung back hard against its initial direction, but changed its mind once again and surged stronger to the upside before forming a quick top and long-legged dojis (gravestone dojis, to be exact) and plunged back to where it was prior to the Fed decision.

The volatility did offer the potential to make money studying order flow and ultra-short term direction, but it was an exercise best left to professionals, and not for ‘at home’ retail traders.  Quote screens flash constantly and fills are often not given at expected prices, and emotion causes us to buy after a run-up and then hold through a sell-off, only to sell at or near the bottom.  It’s so much harder than the price chart above shows.

Try trading a Fed day reaction with a practice account a few times before trading the day live.  There’s often at least three large volatile swings that can reverse direction on a dime, leaving you trapped.

Let’s look at the Dow Jones (DIA) to see the similar pattern.

The only major difference between the two charts is that the Dow closed roughly where it opened, forming a gravestone doji/hammer on the daily chart.  Normally interpreted as a bearish signal, this reversal signal comes not only after yesterday’s doji, but at potential support from the March lows.

Trading a Fed day reaction is very difficult, and requires iron nerves and quick reflexes and a willingness to tolerate rapid swings both in and against your favor.  If you desire to trade these moves, get plenty of experience before trading large positions in these environments.