Momentum Trading Against the Algos
It looks like the algo computer AI trading desks create a wave of volatility on the release of the Fed announcement. The volatility wave is itself neutral. It’s not meant to favor either the bulls or the bears. The purpose of the wave is to see if it sucks in human traders. If a very small number of human traders bite on the upward move, presumably to play a breakout, the algos will take the market back down to see how many human traders bite on the downward move. It’s like price discovery by the computer AIs in an attempt to figure out which side of the market to trade.
In the video below you’ll get to look at SPY in real-time when the Fed announcement of a quarter point rate hike hit the market on June 14, 2017 at 2 PM eastern time.
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