Wednesday 18th September – ES_F Review

Morning Traders,

Very quiet day yesterday meaning we didn’t take a single trade – this is a regular occurance in the days leading up to an FOMC rate announcement with no traders willing to make any commitment in pushing sufficient volume of order flow to give the market a coherent direction. If trading is your full time job, then days like yesterday are incredibly difficult to sit through, hoping to catch an opportunity which never really arrived except for a slight spike up into the closing prints. The best thing to do is sit on your hands and observe the order flow (if you have the patience), or go out and do something else. We watched the first 7 half hour periods before calling it a day on the ES.

Overnight we have inventory that is almost 100% short, balancing in and around the 3,000 level on the December (Z) contract. Whilst we expect a slight inventory correction off the open, normal service should resume (balance) in the time periods afterward until the FOMC rate decision this evening (7pm GMT). For any new traders out there, it’s worth noting that liquidity will really start to ease off in the hour leading up to the announcement and we may be subjected to price spikes as the bid/ask spread widens. Throughout my whole day-trading career, I’ve never carried a position into and FOMC event, as more often than not it ends in tears (for me anyway!).

Once we have FOMC out of the way, we’ll listen to the speech from Jerome Powell to look out for Hawkish or Dovish tones and examine how the market reacts. Once the market has settled down, we can start to establish if high probability outcomes are going to arise.

There are only 2 key levels for us to look out for on the back of the FOMC announcement – the 8 week balance area high of 2945, and the ATH of 3032. To the downside, if we get acceptance back into that range (acceptance being where we spend time and trade volume) then we can re-use some of our targets from the previous 8-10 weeks for short term trades on both the long & short sides. To the upside, anything that breaks the ATH at 3032 and gains acceptance opens up targets of 3064 in the short term.

Ultimately today, we’ll most likely sit on the sidelines until after FOMC, we may not even trade in the post-FOMC session depending on the volatility and liquidity in the market. If you are a new trader, beware you can wipe a whole account based on one big news event like this, so if you’re unsure it’s best to watch from the sidelines as the algorithms duke it out!

Happy trading & stay safe out there