HOW DOES THE INTEREST RATES AFFECT THE FOREX MARKET?
The simple answer is: big time!
You see, traders and investors pour their money into countries with high interest rates so they can get a piece of the return.
The forex economic calendar tells you when, what date and time, a major currency news is going to be out so you will not be caught by unexpected market movements when that happens.
THE RULES OF THE INTEREST RATES NEWS FOREX TRADING STRATEGY
Here is a forex trading strategy which you can use to trade the interest rate news announcements.
The concept and the trading rules fore the interest rate trading strategy are really simple:
The simple answer is: big time!
You see, traders and investors pour their money into countries with high interest rates so they can get a piece of the return.
- So if a country’s interest rates go up, interest in that country’s currency goes up which means that that country’s currency has more demand so people buy more of that.
- If a country raises interest rates over a long period of time, this can cause an extended trend against other currencies.
- Money just continues to pile into these currencies until there is any indication that the party might end soon
The forex economic calendar tells you when, what date and time, a major currency news is going to be out so you will not be caught by unexpected market movements when that happens.
THE RULES OF THE INTEREST RATES NEWS FOREX TRADING STRATEGY
Here is a forex trading strategy which you can use to trade the interest rate news announcements.
The concept and the trading rules fore the interest rate trading strategy are really simple:
- unless you are a time traveler or a prophet, you will never know if the market will react to the interest rated announcement by going up or going down.
- usually, the market would be traveling in a tight range before the interest rate news comes out.
- so just a few minutes before the news comes out, you place two open two opposite market orders at the same time to catch the breakout whether up or down when the news is released.
- one trade is expected to be be a losing trade and the other trade is expected to be a winning trade.
- it is also expected that whichever the winning trade is, that trade will be sufficient to recover the loss of the other trade and end up with some more profitable pips.
- switch down to the 1minute forex chart at least 15-30minutes before the interest rate news and identify the range.
- then at least 3-5minutes before the interest rate figure is released, take two orders: one buy and one sell order.Now, why would you take two opposite orders a few minutes before the news?The spread usually tends to increase significantly before the interest rate numbers comes out, therefore getting in a bit early allows you to avoid having to pay for so much spread and another reason is if you get in a bit early, and hopefully you get in mid range, your stop losses would be roughly half that of the range (in pips) instead of like the non farm payroll trading strategy where your stop loss would be equal to or slightly little bit more than the range.
- Place you stop loss at least 5-10 pips outside of the range. Why 5-10 pips? Here’s why. When you place your stop loss too close, there’s a chance that your stop loss will be hit because of the widening spreads when the the interest rate figure is released.
- For take profit target: multiply the range by 3 (3xrange) and that should give you a reasonable profit target level.
- Obviously, because you’ve entered 2 opposite trades just before the forex news is announced therefore one of the trades will suffer a loss and the other will be profitable (hopefully there’s no wild whipsaws that will take the stop loss out for both orders…). The idea is that whichever profitable trade that results will be sufficient to cover the loss of the other side trade and still give you a reasonable profit.
