Trading Greenspan, Part II
In
my first lesson, “Trading
Greenspan, Part I,” I described the best way to trade
Greenspan during the two months when he delivers his Humphrey-Hawkins testimony. But what about the other ten months? The first step is to recognize that when Greenspan delivers a policy
speech, the impact can span several months. As I said before, this is because Fed policy doesn’t change on a dime. Thus, once the Fed’s policies become clear, the markets behave as
though they assume that these policies will be in place for a while. Your trading strategies, therefore, should evolve around the notion
that Fed pronouncements have lasting impact.
But
how can we decipher where Fed policy stands on a regular basis? I suggest you become a regular Fed watcher. Get in their shadows, in other words. Being a Fed watcher is actually quite simple. What it boils down to is merely tracking the verbiage spewed by the
FOMC—