Every trader has their set of rules, born from the hard-earned lessons of the market’s relentless classrooms. One such rule that I, and many others, hold dear is to avoid trading on Federal Reserve announcement days, colloquially known as “Fed Days”. These days, when the Federal Reserve, led by Jerome Powell, makes interest rate adjustments or significant policy announcements, the market can become an unpredictable beast, thrashing in response to every word, pause, and inflection. This blog post recounts a recent lapse in my adherence to this rule—a mistake that proved both costly and enlightening.

The Promise to Self

The decision to abstain from trading on Fed Days was not made lightly. It was a promise forged from observing the tumultuous waves such announcements can cause in the markets. These are days when the usual indicators and strategies can seem as flotsam in the face of the Federal Reserve’s tidal influences. Recognizing this, I had promised myself to stand clear, to not even open my trading system, Das Trader, on these volatile days. And until that fateful day, I had been successful.

A Day Like Any Other, Until It Wasn’t

The day began auspiciously enough. For the first time in a long stretch, I had allowed myself the luxury of sleeping in, achieving a commendable 91 sleep score on my FitBit—a personal best that promised a day of clarity and productivity. The morning passed in a blur of efficient work and the contented feeling of a day well-started. But as Jerome Powell approached the podium, a lapse in judgment beckoned me toward the very arena I had vowed to avoid.

The Spiral Begins

Opening Das Trader was the first crack in the dam, a small concession to curiosity that quickly became a deluge. The market, reacting live to Powell’s speech, was a maelanage of directionless energy, shifting and churning with each new statement. I told myself I would make only a couple of small trades, a toe in the water in the midst of the storm. But as is often the case, the market’s lure proved stronger than my resolve. A loss soon followed, and with it, the knee-jerk reaction to reclaim what was lost—revenge trading.

The Cost of Disregarded Discipline

As the dust settled and Powell concluded his remarks, I was left to survey the damage. The market’s choppiness had not lent itself to clear decisions, and my foray into Fed Day trading had ended in significant losses. It was a stark reminder that the discipline of trading is not just about what one does but also about what one refrains from doing. My promise to avoid trading on Fed Days was not just a morning commitment; it was meant to last the entire day. By allowing the euphoria of a good morning and the intrigue of the Federal Reserve’s announcements to cloud my judgment, I had disregarded my own rule and paid the price.

The Lessons Reaffirmed

The takeaway from this experience is multifold, serving as a reminder of several core trading principles:

1. Respect the Market’s Power: Federal Reserve announcements can unsettle the market, making it unpredictable and dangerous for those not prepared.
2. Adhere to Personal Trading Rules: These rules are set for a reason, born out of past experiences and losses. They serve as a guide to navigate the market’s complexities and should not be easily disregarded.
3. Understand the Full Implication of Commitments: Deciding not to trade on Fed Days means committing to that decision for the entire day, not just when it’s convenient.
4. Acknowledge the Role of Emotional Discipline: Trading, at its core, is a test of emotional discipline as much as it is of analytical skill. Succumbing to the temptation to trade, even when conditions are not ideal, is a recipe for loss.
5. Embrace the Lessons from Losses: Each loss carries with it a lesson, an opportunity to refine one’s approach and discipline. This experience, painful though it may be, has reinforced the importance of steadfast adherence to my trading rules.

Conclusion

The decision to trade on a Fed Day, contrary to my own rules, resulted in unnecessary losses and a stark reminder of the importance of discipline in trading. It underscored the need to respect the market’s volatility during major announcements and reaffirmed my commitment to adhere to my trading principles, regardless of circumstances. This misstep, while regrettable, has reinforced my resolve to maintain discipline, emphasizing that in trading, as in life, some promises are best kept unbroken. The lesson is clear: when you vow not to trade on a Fed Day, honor that commitment for the entire day, lest you learn this lesson the hard way, as I did.