Once more this month, financial markets swung sharply in response to President Donald Trump’s trade threats and then his retreat, offering investors what traders call the “TACO pattern”: Trump Always Chickens Out, a cycle of policy headline shock followed by a softer reality that swings asset prices.
The latest episode came in late January when Trump abandoned planned tariffs on European allies tied to his bid to acquire Greenland, a dramatic policy move that briefly rattled stocks before his reversal sparked a rally.
Within hours, markets reacted fast: stocks initially slid on tariff fears, then climbed after Trump said he reached a “framework of a future deal” and scrapped the duties, pushing broad indices higher.
This on-again, off-again pattern has become familiar enough that it shows up in journalist commentary and even in market jargon, and it creates pockets of profit opportunity for investors and traders who know how to play the swings.
Here are four ways people can make money on these cycles:
1. Buy the Dip After Headline Shock
The most straightforward approach in a TACO cycle is to buy stocks and risk assets when they drop on aggressive political headlines, and sell once markets realize the threat will be softened or reversed.
That pattern played out in late January.
U.S. stock markets fell sharply after Trump’s tariff threats related to Greenland, marking the worst S&P 500 session since October 2025, a selloff that traders said was triggered by sudden policy risk.
Then, after his announcement that he would not impose the planned tariff and had agreed on a placeholder deal framework, indexes rebounded. On Jan. 21, the S&P 500 was up more than 1%.
The mechanics are straightforward: news shocks often exaggerate expected economic harm, which pushes prices down.
When the risk is priced as less severe, traders who bought the dip can profit as prices recover.
This tactic is typically used in broad market ETFs like the S&P 500 Index fund (SPY), or individual stocks that are sensitive to trade policy, particularly industrials, global exporters, and large-cap growth names.
2. Sell Volatility When Fear Is Priced In
When Trump says something aggressive, fear usually spikes, and so does the price of options.
Traders often pay more for options when they’re worried, which pushes up the CBOE Volatility Index (VIX).
Some investors take advantage by selling options when things get tense and buying them back after things calm down.
If Trump backs off, like he usually does in the TACO pattern, volatility drops fast, and that drop can turn into profit.
It’s not without risk. If the threat turns real, this move can backfire.
But when the pattern holds, there’s money to be made riding that swing in fear.
3. Rotate Into Safe-Haven and Countercyclical Assets
Sometimes the smart move isn’t buying beaten-up stocks, it’s going where nervous money goes.
When things get tense, investors often park cash in gold, Treasuries, or stocks that hold up in rough times, like utilities and grocery chains.
That’s what happened during the Greenland tariff scare. Gold prices jumped as traders moved out of riskier assets.
Anyone holding gold or gold ETFs like SPDR Gold Shares (GLD) saw quick gains.
U.S. Treasury bonds also saw inflows, since they’re seen as a safe place when headlines shake confidence.
Bond prices rose as yields dropped, giving another route to profit without betting on a stock rebound.
Savvy investors can position ahead of suspected volatility spikes, based on political cues, and then trim positions once markets calm.
4. Trade Currency Swings Around Policy Uncertainty
International trade threats and tariff announcements also affect currency markets, which are often more sensitive to macroeconomic signals than equities.
In late January, news reports highlighted a drop in the U.S. dollar to a four-year low after Trump downplayed market concerns, even though the weak dollar can benefit U.S. exporters.
Currency traders who anticipated a reaction can profit by positioning ahead of uncertainties.
For example, currencies perceived as safe, such as the Swiss franc (CHF) or Japanese yen (JPY), can strengthen when markets are unsure, and risk assets wobble.
Conversely, if the threat is walked back and economic outlooks improve, the dollar can bounce back, giving profits to those who timed currency bets.
Trading currencies isn’t simple, but for people who know what they’re doing, these policy swings can open up fast money-making opportunities.
Why This Pattern Keeps Happening
The recurring nature of these swings comes down to how markets digest headlines versus reality.
Political rhetoric often prices in worst-case scenarios quickly, because traders have to mark positions to news. But when policymakers, in this case, the White House, soften their stance or delay implementation, markets adjust back.
Wall Street journalists have pointed out that this dynamic is so recurrent that it has its own nickname. Financial commentators describe a cycle in which serious threats move markets, only to be scaled back under economic pressure.
In a recent Davos speech, Trump hailed a framework deal and said stock sell-offs were “peanuts” compared with market gains, reassuring some investors and helping markets rebound.
But traders know this isn’t guaranteed every time. Sometimes initial threats are followed by longer periods of uncertainty, and not every reversal is swift or clean.
Risks and Reality
None of these strategies is, without danger.
Buying dips can result in losses if the threat materializes or if markets remain volatile.
Selling volatility can result in huge losses if fear deepens instead of easing. Currency and safe-haven trades can also reverse sharply.
Investors using these patterns need strict risk controls, position limits and exit plans.
Still, for many market participants, the TACO pattern, the cycle of headline risk followed by policy softening, provides repeatable, profitable opportunities when paired with discipline.
Conclusion
People can make money on Trump’s repeated pattern of sharp policy threats and subsequent walk-backs by understanding how markets react.
Buying the dip, selling volatility at peak fear, rotating into safe havens, themselves, and trading currency swings are all ways informed investors can position around the swings.
But profit is never guaranteed. Each episode is a reminder that markets often move first and parse reality later.
And as long as aggressive headlines are followed by softer implementation, the TACO swings will continue to offer opportunities for those who understand how to trade them.