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  1. #1
    Rookie Member Arseny's Avatar

    Question FOMC (Federal Open Market Committee) strategy ? !!!

    Guys, I've heard about forex FOMC (US Federal Open Market Committee) trading strategy - basically trading on the news that shake USD related currency pairs. Can anyone advice if similar strategy can be applied to binary options? Thank you

  2. #2
    Veteran Member Optionguy's Avatar
    It could be used for trading short term. If the trend of the market is up, you will be looking to trade only calls, if it is down, you would be looking to trade only puts. Let's say eur/usd is going down. After the release market jumps up (goes against the prevailing trend). In most cases, dealers and other big boys will fade the move and market will fall back to its' pre-release levels. So, one can take a one day put right after the initial reaction of the market fades. In most cases it happens within 15 minutes or 1 hour after the statement is released.

  3. #3
    Legendry Member milos's Avatar
    Quote Originally Posted by Arseny View Post
    Guys, I've heard about forex FOMC (US Federal Open Market Committee) trading strategy - basically trading on the news that shake USD related currency pairs. Can anyone advice if similar strategy can be applied to binary options? Thank you
    Hello Arseny

    You should avoid to trade during Federal Open Market Committee.The highest level of volatility was recorded for gold.During the FOMC the price of gold dropped/rose in range $40-$50 per ounce. This trading is too risky.Use charts M1 time frame.During the news traders have been confused.If you want to trade during FOMC you should be familiar with monetary policy of quantitative easing.It was ended in October.

  4. #4
    Rookie Member kipbin's Avatar
    I use ladder options to trade these FOMC announcements. Payouts on ladders are pretty nice compared to regular binary options and you have better risk/reward and hedging opportunities. It also works on other major news releases like the monthly jobs report, GDP number, or pretty much any other major news announcements. It also works very well during a strongly trending market. Overall, a very profitable strategy for me over the last 3 months.

  5. #5
    Rookie Member Arseny's Avatar
    Kipbin, so do you trade based on the forecasts for announcements?

  6. #6
    Legendry Member Michael Hodges's Avatar
    how do you make your decisions? are you taking a stand and then sticking to it no matter what or waiting for the announcement? I also think you could probably buy two ladders, one going each way, they pay better so you can probably profit on the move regardless of the decisions.

  7. #7
    Rookie Member kipbin's Avatar
    I generally trade in the direction of the trend prior to the announcement. If the trade goes my way, I will usually put in a hedge in the opposite direction to ensure a profit in case of whipsaw. Payouts generally range between 100% to 400% depending on how far away you are from the ladder strike and the volatility at that given moment. Back in September,I actually got a 900% payout on a trade but I only risked $25 (ended up making $225 profit). Percentage-wise that's the highest one I've hit itm!

    https://drive.google.com/file/d/0B8J...ew?usp=sharing

  8. #8
    Legendry Member Michael Hodges's Avatar
    Yeah, I think ladders may be the way to go, but you need some real patience. You can't just trade one of those out of the money options on any old signal or announcement. Of course the nearer and at the money options also present some good opportunities for less mobile markets.

    I find it important to have a pretty good idea of what to expect from the meeting as well, just knowing it is there is not enough. I like to know if the news is expected, expected to be good or expected to be bad, and if the news is going to be good for the market or bad for it, you know like when good news confirms an interest rate hike, maybe good, maybe bad, depending on your outlook and such....very advanced trading you have, like it I do, the force is strong with this one....

  9. #9
    Rookie Member kipbin's Avatar
    The hardest thing I have found using this strategy is staying patient and only taking trades with the "right" balance of risk, reward and probability of success. For example, prior to an FOMC announcement say you are looking at taking a ladder trade that is over (or under) 200 points above the current price, but you know from previous experience that when this kind announcement is released there is a decent chance that the price will spike significantly enough to reach your strike price. So to keep things simple, lets say that the trade has a 40% chance of success (based on your previous analysis of price action from previous news releases of this type), maybe you could assume a little higher if you are planning on trading in the direction of the trend. So what is the minimum payout you should consider as to whether you should take the trade? that's when you have to factor in the probability. if you assume 40% success for this trade, the minimum payout should be 150% or more. Why? Well if you take the same kind of trade each time, and have an approximate 40% success rate, you will have 4 winner and 6 losers over the course of 10 trades. Assuming you risk $100 per trade, your profits will come out to $600 (4 trades x $150 profit each) and your losses will come out to $600, so you break even. So to actually be profitable you have to up this amount to say a minimum payout of 200%. Using the same ten trades and assumed probability of 40%, you now end up with a net profit of $200 over ten trades. When you look at it this way, and develop rules for entry, choice of price levels, hedging strategies, and estimate probabilities (based on past news releases) you can see how this can be refined into a potentially much better strategy. Statistics and probabilities can be boring, but they can also be your best friend when trying to figure out ladder trading! I'm not quite there yet, and still use my "gut" more often than i should to justify taking a lower payout trade. But overall, I have managed to make some modest sum of money with this strategy over the last 4 months or so (well, in reality this is not true because Titantrade will not payout any of the profits I have made, and has recently locked me out of my account - but that is a separate thread). I just need more time to do more analysis and back testing for other types of high impact news releases, and above all the discipline to pass on trades that do not meet the risk/reward profile that I have defined.
    Last edited by kipbin; 12-13-2014 at 03:59 AM.

  10. #10
    Legendry Member Michael Hodges's Avatar
    I thnk this strategy could really pay off this week, the market is pulling back hard ahead of a FOMC meeting that is most likely going to signal that the economy is good and that inflation is low, for now...

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