Let us realize that all market participants swim in the same shark tank. However, the balance of power is unevenly distributed and some participants leave their mark on the market.
Bank Trading Secrets: How to Trade like the Banks!
Central banks are among the most important participants in the forex and bond market. Central banks are responsible for monetary policy in the respective currency area. They conduct foreign exchange transactions and change key interest rates, This impacts forex brokers like XMTrading and this means that the remaining big players make new investment decisions. This in turn ensures price movements that we speculators can use to our advantage. Of course, only if we know why an asset is moving in the corresponding direction.
In addition to the central banks, investment banks and hedge funds also ensure movement in the market due to their size. Many pursue a “global macro strategy” and are very successful with it. New trading is nothing else than what we do at TradingFreaks.
Here, macroeconomic events are used as an opportunity to plan and execute a day trade or swing trade.
Of course, not all news or events are relevant to the market. There are days when there are no important economic data releases, no key interest rate decisions, no escalating politicians, and on which classic “trend trading” can work in short time units.
Market phases alternate constantly and as a trader, you have to find out when your time has come (and when not).
What news is interesting for traders?
As a trader, your job must be to find out which news move the market and which are irrelevant.
We start with the influencing factors in the forex market.
We consider two broad categories:
2. Monetary policy
We pay attention to market-relevant news and economic data from these two subject areas.
- Important economic data are indicators for the central banks. Since we know how a central bank works and what it will do (changes in key interest rates), we can take advantage of such events.
- In times of crisis, the yen is chosen as the safe-haven flow. We use the JPY as a strong currency, especially in politically unstable times. Accordingly, the money will flow out of the JPY when the situation calms down.
- If a central or central bank announces a “dovish” measure and this surprises the market, then the rate of the currency falls. In the picture above we see this case in EURSEK.
In addition, there is another example for the stock market: The profit warning in the Thyssen share ensures further downward pressure after opening with a gap down.
- The right news ensures that market participants reposition themselves. The increasing volume often leads to spikes and trend changes that we can use perfectly.
- Even if a trader does not sit directly on the screen to publish the news, he can still use the fresh sentiment a few hours later. This trading approach is also interesting for working people!
So you see that news can be traded. The crux of the matter is to concentrate on the right news in trading and there are many misconceptions. News trading is a strategy used by investment banks and hedge funds on a daily basis, and we can do it the same way.
Remember: The most important thing for a private trader is to have a proven trading strategy. Tried and tested means that it has brought in constant profits over a period of at least 6 months without a large drawdown.