Does it pay to trade on FOMC?
As in every question we ask in systematic trading, we have to test it to determine what the data says. It can depend on your strategy, market, and portfolio setup you are trading.
In order to test this, we have added the dont trade on FOMC function to the Portfolio Calculator in Excel. Our Portfolio Calculator exports the Daily P/L for each strategy so we can test the combined equity curve results and determine portfolio combinations. This is an external rule caclulated in Excel and not an Easylanguage rule.
This is different than DontTradeOnHolidays since that is an Easylanguage rule.
The FOMC, Federal Open Market Committee meets 8 times per year, a pre-scheduled meeting to share their latest policy change, if any, and to give guidance on the economy and future policy.
It can be a violent market mover at times with many whipsaws in price action.
We have added a list of FOMC dates to the Portfolio Calculator and multiplied the daily P/L by 0 if this rule is on. This rule in the spreadsheet tells us how our portfolios would work if they trade on FOMC or dont trade on FOMC. Going back 10 years, and not trading on FOMC is a better proposition for the Stock Index Portfolio 40 as it reduces the 50k drawdown to about 45k in mid 2016. The most relevant market data for our Stock Index Portfolio is from mid 2016 forward. To actually implement this rule, you would exit any open positions that wouild hold overnight on the day before FOMC, right at the close by 4pm CST/5pm EST for most commodities.
Grains close at 1:20 pm CST/2:20 pm EST. You would then turn off automation and even close down Tradestation from 5pm CST on the day before FOMC until 4pm CST on the day of FOMC. Once the market closes at 4pm CST, you would then setup your trading platform to re-sync existing swing positions at 5pm CST and to take any new trades. At 5pm CST/6pm EST on FOMC day, the new session begins so you would then re-enter any swing positions right at the session open. You would actually re-sync your positions on the same calendar day as FOMC since 5pm CST is the beginning of the new session.
If you are only trading day trade strategies, you would already be out by the close on the day before the FOMC and you wouldn't have to turn on automation until the day after the FOMC before the day session open. Grains re-opens at 7pm CST each day instead of 5pm CST. Its nice to be able to justify 8 scheduled days off per year during the week. FOMC day might become my designated haircut day. Its always possible that as soon as you stop trading on FOMC day, it could become some of the best trading days in a year.