[Soultrader]

I personally do not trade the news but have been watching the market reaction to fed news for quite some time. I have noticed one interesting pattern

The pattern is the 1-2-3 wave pattern. At the moment of the news release the market reacts fast and rapidly into one direction.

Let's say on the initial news, the markets moves up. This is the first wave. The second wave is the correction to the overreaction. The market then makes a rapid decline as fast as the initial upthrust.

So far we have a 1-2 wave move. The third wave is the most interesting price action. From my observation this tends to be the correct direction. The third wave will then go in the same direction as the initail move.

So one trading setup I am currently designing is to wait for the second wave to finish. The first wave is the correct move but usually too fast to enter or else you will be chasing. The second wave is unpredicatable as there is no price level to anticipate the reversal.

Therefore the trading setup I have in mind is to place an buy order at the the midpoint of the range of the first wave.

So for example: if the first wave goes from 12200 to 12250, and the second wave goes from 12250 to 12210, the buy entry would be placed at 12225 after the second wave.

I have seen price take off well above the first wave on fed days.

Anyone else have any thoughts on trading Fed days? I would love to hear some opinion on this or perhaps other methodologies used to trade fed days.