Today’s Trading Lesson From TradingMarkets

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—