How I Managed a Forex Trade During a Fed Announcement
It was Wednesday morning, and the markets felt like they were holding their breath. It was the day of new Federal Reserve Chairman Benjamin Bernanke’s first testimony before Congress, and everyone was waiting to see what he would say. Coincidentally, it was also the 35th anniversary of the NASDAQ. I used to joke that two things were born in 1971: me and the NASDAQ.
Aside from an early move in the GBP/USD pair, the charts were showing a lot of consolidation, just waiting for a spark. But I had to contend with more than just the market; a headache was tightening around my temples like a vice. This is a critical factor in any high-stakes : you have to be honest about your own condition. If you're not feeling 100%, you have to adjust your strategy.
Navigating the Day's Hot Zones
My focus was on two major economic events, or “hot zones.” The first was the Treasury International Capital (TIC) data scheduled for 9:00 A.M. EST. This would be followed by Industrial Production numbers at 9:15 A.M. Then, at 10:00 A.M., Bernanke’s testimony would begin, and I knew the U.S. dollar would react to every word.
Normally I watch the six major currency pairs, but today I decided to simplify. Because I wasn't feeling my best, I narrowed my focus to just one cross-rate pair: the EUR/JPY. This is a key lesson for anyone —know your limits. Pushing yourself when you’re not physically or mentally ready is a recipe for disaster. If you can’t trade at your best, either take it easy like I did or just walk away for the day.
Identifying the EUR/JPY Setup
The EUR/JPY caught my attention because it was trading in a tight channel on the 60-minute chart, showing a great Wave setup and a clear congestion pattern. When I'm looking at this pair, I usually cross-reference it with the USD/JPY and EUR/USD, but today was about keeping it simple.
Here’s why the setup looked promising:
- The potential for a downward move was visually obvious and confirmed by price action. Before you ever trust your gut, the chart has to back it up.
- The setup was happening just below the 140.00 mark, a major psychological number that always gets my attention.
- On both the 30- and 60-minute charts, the MACD histogram was well-established below its signal line, indicating bearish momentum. It wasn’t just hovering around the zero line, which would have made it less reliable.
I decided to go with the 60-minute chart because it showed a complete symmetrical triangle, a more robust pattern than the one-sided one on the 30-minute chart. This type of detailed analysis is what turns from gambling into a calculated .
My Game Plan and Execution
With a clear setup, I defined my trading plan:
- Short at 139.93.
- Initially set at 140.12.
- Two targets at 139.73 and 139.55. My plan was to scale out, taking 50% of the position off at each target.
Since I knew I'd still be in the trade when the 9:00 A.M. TIC data was released, I decided to manage my stop mentally. Instead of leaving a live order at 140.12, I would use a “60-second stop” at the moment of the release. This is an advanced technique where you wait a full minute for the initial market chaos to settle before making a decision. Getting stopped out by a knee-jerk reaction to news is not effective risk management. A word of caution: if you’re not prepared for that kind of intensity, you should either close your trade before the news or avoid trading altogether. This is especially true for where you can't be glued to the screen.
The trade worked out. The EUR/JPY sold off and hit my first profit target with relative ease. At that point, my trade management strategy kicked in, and the original profit targets became levels for my trailing stop.
The Key Takeaway: The Rubber Band Effect
Soon after, the price broke through my second profit target (which corresponded to the 0.786 Fibonacci level) before bouncing back hard. This brought up the challenge of where to place my trailing stop. I could use the 0.786 level, or if that felt too tight, the 0.618 level. The goal is to give the market enough room to breathe without giving back too much of your profit.
Here’s a little insight from that trade: when prices break down that fast, they often snap back just as hard, like a stretched rubber band. Recognizing this pattern can help you manage your exits more effectively and protect your profits when you’re .
