The Interest Rate Cut and Day Trading
What the Interest Rate Cut Means to
Emini Day Trading
9/21/07
It's been almost a week now since the Fed rate cut. The past few months
leading up to the cut were some of the most volatile, unpredictable, and
sometimes painful months for emini futures traders in quite some time. So
what now?
Just about every emini system day trader that I know took a beating these
last few months. When we started seeing swings in excess of +/-0.75% across
the board, most emini trading systems, no matter what marker generated the
underlying signal, were thrown out of wack. Cycles were disrupted and
patterns that trading systems were accustomed to seeing were no longer there
to be found. Speculators were no longer on the trend it seemed. But there is
hope...
Over the last 5 emini trading days, traders have noticed the markets quiet
down a bit. The volatility that was ruining everything for traders is no
longer there. Markets are deviating no more than 0.5% or so from the opening
bell and there have been very little gap up/down movement. That seems to be
a good thing because, from the emini trading systems that I watch, it seems
like things are back on track for now, at least.
Another advantage of having those volatile days behind us is that emini
traders' use of leverage is somewhat more predictable and useful now. The
facet of trading that we are most thankful for that came out of this whole
Fed ordeal is the fact that we now have a better gauge on our risk
tolerance. Over the past few months, with emini market swings of 2.5% on the
S&P one day and then 0.5% on the S&P the next day, it is impossible to
determine the number of contracts one should be trading. Sure the most
popular features of eminis is it's leverage, but it gets tiring, even
outright scary, to trade 15 contracts one day and then only 3 contracts the
very next day.
With money market, CDs, and savings accounts dropping by at least a half a
point in the near future, now is a good time to reassess your risk appetite.
Let's face it - we're barely practicing capital preservative skills by
having money sit in an account earning 2% (and inflation will eat that for
lunch). And if the water stays calm until the next time the Fed reconvenes,
I would hope for a return of the much less volatile, less risky trading
environment that what we have been accustomed to over the past few months.