There’s a common saying on Wall Street: don’t fight the Fed. The reason is because the Federal Reserve has a dramatic impact on economic trends by controlling and regulating the interest rates of banks. The reason for this is because in general, low interest rates spur consumer spending and high interest rates mitigate it. It makes sense because the average consumer is more likely to buy a house or a car when the interest rates on a loan are low, and less likely to save money when interest rates on savings accounts are low as well.

The opposite is also true. If you have to take out a mortgage or a car loan with a 9 percent interest rate due to the Fed jacking up the rates, you’re a lot less likely to put yourself under the burden of all that debt. Why take up the extra risk and responsibility of paying the extra money back?

According to Simon Thompson, one of my favorite traders and a published author, the S&P 500 grew an average of 16% every single time the Federal Reserve began an interest rate cutting cycle to spur the economy. This could quite honestly be some of the easiest 16% you’ve made in the financial markets in a long time. Buying a basket of diversified stocks or even just the SPY exchange traded fund could really help beef up your portfolio if you time it right.

According to Simon Thompson’s methodology, the most dramatic rises in the market were seen after the final rate cut in the Federal Reserve’s cycle was announced. This is because when the Federal Reserve discontinues its rate cutting policy on the banks, it’s a public sign that the Fed believes the economy to be well on its way to recovery. This helps fortify investor confidence and traders start buying stocks more aggressively. So, to trade this strategy, pay attention to the Federal Reserve and when they announce the last rate cut in a cycle, buy the SPY or a basket of diversified stocks and hold them up until the Federal Reserve announces rates tightening back up again. This is a systematic and conservative way to generate consistent profits trading stocks on interest rate cycles.