When you’re trading ahead of major economic reports, like the Consumer Price Index or the Federal Open Market Committee minutes dump, you need to think of the market as a calm sea before a potential storm.
It’s a game of anticipation — and the key is to position yourself in a way that maximizes opportunity while minimizing unnecessary risk.
The first thing to understand is that institutional traders, who control a massive amount of the market’s volume, generally aren’t making any big moves until that critical data is released. That means you’re typically going to see lower liquidity and choppy, directionless trading.
The action often slows down, and it’s easy to get caught in the chop if you’re too aggressive.
So, what do I do?
I watch key levels and sit on my hands until the report is out. For example, if I know the CPI report is coming in at 8:30 a.m. ET, I won’t even think about entering a trade until after 10 a.m., a full half-hour after the market opens and the dust settles a bit.
That’s when you get a much clearer picture of true market direction, and that’s when I start looking for opportunities.
Now, something important to keep in mind — the market often overreacts right after the news drops. You’ll see sharp spikes or dips as traders scramble to initiate or cut positions, and this is where patience becomes your best friend.
The knee-jerk reaction right after the report can often be misleading. You need to wait for confirmation that the market is truly picking a direction before making your move. That initial volatility can be a great opportunity, but you have to be smart about when to jump in.
Here’s another key — know the consensus expectations going into the report.
Whether it’s CPI, unemployment numbers or the Fed’s comments, Wall Street has a number it’s expecting, and anything above or below that range can cause significant market movement.
For example, if the market expects inflation to come in at 3.0% and we get a print of 3.3%, you’re likely to see a sell-off because it suggests inflation is hotter than expected, and the Fed might tighten policy. On the flip side, if the number comes in lower than expected, the market could rally because it indicates inflation is cooling off.
Timing is everything!
One of my core rules is to avoid getting caught up in the market’s pre-report drift. If I’m looking to place trades, I’ll wait for the market to absorb the data before I commit. Ideally, I’ll start looking for trades once we’ve seen a clear reaction, and there’s a directional bias established.
Lastly, don’t forget about volatility…
The VIX often spikes ahead of major economic reports, signaling increased fear or uncertainty. If the VIX breaks certain levels — the 20 level means average volatility, 1% moves up or down in a given day — it can indicate whether investors are truly concerned or if the market is simply bracing for potential turbulence.
Keeping an eye on that tells you whether the fear is real — or just noise.
In short: Don’t force trades ahead of a major report. Wait for the market to show its hand. Stay patient, know the expectations, and look for momentum once the dust settles. That’s how you position yourself to profit while avoiding unnecessary risk.
I hope that helps!
Roger Scott
Roger Scott Trading
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