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You are here: Home / Archives for Education / Forex strategy

Best Time to Trade AUDJPY!

by Fxigor

The Australian Dollar and Japanese Yen (AUD/JPY) currency pair is an attractive choice for forex traders looking to capitalize on their forecasts of price movements. The AUD/JPY is heavily influenced by the changing global economic environment, providing traders ample opportunity for profit. As such, knowing the best time to trade AUD/JPY can significantly impact your bottom line.

The Australian Dollar is predominantly driven by commodity prices, while the Japanese Yen reflects economic trends in Japan and abroad. Currency pairs like the AUD/JPY are susceptible to events that affect both sides of the equation, creating ample opportunities for savvy traders.

 

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Best Time to Trade AUDJPY

The best time to trade AUDJPY using a range trading strategy is during the Asian session. However, if you use trend following strategy and high liquidity and volatility trading, the best time is after the US open trading time, when US and EU market overlap, from 8 a.m. to noon EST.

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AUDJPYH1 trading by sessions overlap

Generally, the AUDJPY pair tends to have higher volatility than major currency pairs like EURUSD or USDJPY. This is because both currencies in the pair are considered high-beta currencies, meaning they are more sensitive to changes in risk sentiment and global economic conditions. As a result, the AUDJPY pair can be more volatile and experience sharp movements in both directions.

In terms of liquidity, the AUDJPY pair is considered to be moderately liquid. While it may not have as much trading volume as significant currency pairs, it still has sufficient liquidity for most traders to enter and exit positions without substantial slippage.

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It is important to note that the volatility and liquidity of the AUDJPY pair can change over time and can be affected by various factors, such as changes in global economic conditions, monetary policies, and market sentiment. As such, traders should continuously monitor the latest developments and adjust their trading strategies accordingly.

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Regarding trading AUD/JPY, there is no one-size-fits-all answer as it depends mainly on what type of strategy you choose to employ; range trading or trend following. Range trading relies on buying and selling with limited risk exposure during periods of low volatility when prices remain within a defined range over a long period. On the other hand, trend-following strategies require high liquidity and volatility to maximize potential profits from price movements.

For range traders, the best time to trade AUD/JPY is usually during Asian session hours (the session begins at 23:00 GMT and lasts until 8:00 GMT on the next day). During this time frame, price movements tend to be less volatile than other trading sessions as market participants take a break from trading activity in Europe and North America. However, suppose you’re looking for higher liquidity and more volatile price action. In that case, it’s generally advised to focus on the overlap between the US Open (8 AM EST) and EU close (5 PM GMT), which typically provides suitable conditions for profitable trades due to increased liquidity and volatility.

In addition to understanding when it’s best to trade AUD/JPY, several factors need to be taken into consideration before making any decisions regarding entry and exit points: current political climate in Australia & Japan; economic indicators released by both countries; news-related events; central bank policy changes; technical analysis; etc. All these elements will directly impact the currency pair’s performance, so consider them before entering or exiting any positions.

Ultimately, selecting the optimal time for trading AUD/JPY requires an intimate knowledge of these markets and a deep understanding of how different market conditions can influence its performance over short or long-term periods. However, armed with a sound strategy based on fundamental analysis backed up by technical insights, plenty of opportunities should be available for those who want to make money trading this currency pair regardless of whether they use the range or trend-following strategies.

Filed Under: Forex strategy

Autochartist Review – Autochartist Accuracy Case Study in 2023.

by Fxigor

Autochartist is a platform that generates trading signals and delivers 1000+ actionable trade opportunities per month in financial markets in real time. This tool is a market scanner and can provide statistically significant market movements and identify basic price levels. So, we created one case study using the MT4 Autochartist plugin.

Autochartist platform

Autochartist is a trading signal platform that provides traders with comprehensive market analysis. Using the Autochartist MT4 plugin, traders can quickly identify entry and exit points and assess market volatility. Moreover, Autochartist enables investors to receive real-time updates on upcoming market movements and detect potential trading opportunities. By utilizing the Autochartist service, traders can increase their chances of success in the financial markets.

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Autochartist accuracy is between 63% and 82%, but generally, trades have a low-profit factor. Based on a case study, in the last 18 months (1.1.2019 till 1. January 2023), accuracy was 64% for significant forex pairs, and the profit factor was 1.01. Using the Autochartist MT4 plugin after 18 months of trading, the trading balance almost didn’t change.

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When it comes to accuracy, Autochartist’s performance is consistent. The platform provides signals with an accuracy rate between 63% and 82%. This means that out of every 100 trades based on these signals, at least 63 will be profitable. However, users should note that the profit factor for trades generated by the system is relatively low compared to other automated trading systems. A case study of 18 months (from 1 January 2019 to 1 January 2021) showed that significant forex pairs had an accuracy rate of 64%, while the profit factor was recorded at 1.01—almost flatlining the trading balance over this period.

Besides providing accurate forecasts and signals, Autochartist also offers its clients additional tools, such as chart pattern recognition software, which helps traders identify emerging trends or technical indicators that may help them spot potentially profitable trades before they happen. It also has a feature called Volatility Analysis which allows investors to make informed decisions about their investments by displaying current volatility levels for certain assets across different timeframes (1m – 1y). In addition, Autochartist’s Risk-Level Indicator gives traders an idea of how much risk they take with each trade based on their stop loss level.

To further ensure client satisfaction and reliability, Autochartist constantly updates its software to provide its clients with the most up-to-date information on the market. It also offers customer support services through phone or email 24 hours a day throughout the week so customers can get assistance whenever needed. Furthermore, Autochartist provides educational materials such as webinars and tutorials to help users better understand how to use their service effectively for maximum profits.

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Overall, Autochartist is a reliable trading signal platform that offers its clients high accuracy rates along with additional features like chart pattern recognition software or Volatility Analysis which can significantly boost chances of success in financial markets if appropriately used by traders who have sufficient knowledge about trading strategies and risk management techniques.

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Accuracy is not so important in trading.
For example:
If I buy one mini lot of EURUSD at 1.3, stop loss 1.295, and target 1.3025, I risk $50, and my target is $25.
I can trade 999 times, risking $50 and trying to achieve $25, accuracy can be 66%, but I will have a $0 profit in the end.

333 times I will lose $50 = -$16.650
Six hundred sixty-six times, I will win $25 = +$16.650

Autochartist accuracy case study description
This study used significant forex pairs: EURUSD, GBPUSD, AUDUSD, NZDUSD, USDJPY, USDCAD, EURCHF, EURJPY, and GBPJPY.
We made trades using one micro lot.
Tool: Autochartist MT4 plugin (our broker offers a free agency).
We traded 1 hour and above (higher time frames) to avoid overtrading.
We traded only signals with at least a 75% probability of success.
Results were:
Accuracy: 65%
Profit: 1.01

Autochartist performance statistics

To check Autochartist performance statistics in the Autochartist platform, go to the performance statistics tab, and select the asset you want to analyze based on pattern, critical level, and key-level approaches. See details in the video below:

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Autochartist review grade

The Autochartist application ranks 3.5 out of 5 ratings based on several trading forums and Google Play. Autochartist reviews show that this tool uses thousands of regular clients around the globe. This indicates that Autochartist is a well-known and regularly used price forecasting tool. Autochartist technology enables users to monitor thousands of Forex financial instruments and their patterns.

In the following chapters, we will see the essential platform review.

Autochartist chart patterns list is:

  • Channels (up and down)
  • Triangles (ascending, descending, and symmetrical)
  • Rectangles
  • Double top and Double bottom
  • Triple top and Triple bottom
  • Head and Shoulders (plus inverse Head and Shoulders)
  • Wedges (rising and falling – continuation and reversal)
  • ABCD pattern
  • Fibonacci retracements and extensions patterns
  • Gartley (harmonic pattern)
  • Butterfly (harmonic pattern)

Let us learn more about this tool:

Autochartist platform cost

  • The Autochartist Monthly Subscription plan is $29.
  • Three Month Autochartist Access Once-Off payment plan is $87.
  • Autochartist Six Month Subscription Plan is $145.
  • Autochartist Binary Options Three Monthly Subscription is $30.

Traders can get free Autochartist MT4 plugins from their brokers. For example, clients can use Autochartist HFM or Autochartist IC Markets for free.

Clients of IC Markets had access to Autochartist’s automated technical analysis and content through the MT4, MT5, and cTrader platforms.

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How to use Autochartist on MT4?

Autochartist is an innovative trading platform that can provide traders with high-quality signals for successful forex and stock trading. The system combines sophisticated software algorithms with real-time market data to identify profitable opportunities in the financial markets. Autochartist can provide traders with timely alerts of potential trades, helping them to make informed decisions on when and what to trade.

how to use Autochartist platform

The Autochartist platform is designed to be easy-to-use, highly customizable, and flexible enough to meet novice and experienced traders’ needs. It features an intuitive graphical user interface (GUI) that allows users to quickly understand the market dynamics and make informed decisions based on their unique trading strategies. For example, users can scan multiple timeframes or select predetermined technical analysis indicators such as Fibonacci retracements, Elliott Wave theory, support & resistance levels, or candlestick patterns to quickly identify potential price points of entry or exit from a trade. Furthermore, Autochartist also provides recommendations for optimal risk management practices, such as stopping losses and taking profits.

For those new to trading with Autochartist, it can be helpful to start by reviewing the available tutorials in their online Learning Center. Here users will find educational resources covering everything from basic concepts such as price action analysis and money management techniques to advanced topics like algorithmic trading systems and neural networks. There is also a library of pre-recorded webinars available for free that cover various aspects of Autochartist’s features and capabilities in depth.

Several options depend on your broker’s capabilities when it comes time to place a trade using Autochartist’s signals. Many brokers offer direct integration, which allows for the automated execution of trades based on alerts provided by Autochartist’s analysis engine. Alternatively, mobile apps available from both iOS and Android stores allow users to access the platform away from their computer or laptop – great for those who may want flexibility when executing trades while out and about! In addition, plug-ins are available for popular charting packages such as MetaTrader 4/5 so that traders can easily overlay the signal data directly onto their chart sets up for straightforward visual interpretation by the user before making their trade decision.

Finally, once you have chosen a broker integration option for Autochartist Signals, it’s essential not to forget proper risk management when executing your trades based on these signals! Just because a signal has been generated does not necessarily mean it will result in profits – just like any other form of trading, you must consider overall market conditions and your particular strategy goals before entering any positions based on these signals! Therefore, you must familiarize yourself with how leverage works to properly manage your risk exposure and set appropriate stop losses accordingly should your trade move against you unexpectedly due to unforeseen events in the market.

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To use Autochartist on MT4, please download the MT4 plugin, run the .exe file, and install it. All steps can see below:

autochartist installation steps

Please see the video explains how to use the Autochartist mt plugin:

autochartist mt4 plugin

There is one more excellent tool.

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Autochart volatility analysis

Autochartist volatility analysis represents an optimization process for trading stop-loss and take-profit levels with the Autochartist volatility analysis tool. This analysis will draw a price range for each trading instrument in each time frame. For example, on the same chart, you can compare volatility for EURUSD on H4, weekly, or 15 minutes. 

In the video below is the Autochartist volatility analysis explanation:

Autochartist binary options

Autochartist binary options tool can scan binary options assets and provide possible direction based on pattern and time. It is presented in the video below:

Autochartist binary options tool can be used for analysis. See the video below:

However, this tool is no “Holy Grail” in trading, and traders can not achieve high expectation profits. But this tool is suitable for analysis and to “catch” exciting setups.

Filed Under: Autotrading, Forex strategy

The Best Divergence Trading Strategy

by Fxigor

A financial market is an uncertain place. One cannot predict the exact movement of the price of any instrument in the market. But traders and analysts can at least indicate the trend that may follow with the indicators’ help. The trend means the expected direction of the price of a particular instrument or security. There is more than one type of indicator, and each has its process of predicting the pattern of a trend in price.

Indicators can provide signals for almost all financial instruments but, most importantly, for Forex. One can have a real-time analysis of the complete price movement in the market.

What is a divergence in forex trading?

Divergence is the price movement process when an asset’s price (currency pair) moves in the opposite direction of a technical indicator, usually an oscillator. Divergence warns that the current price trend may lead to a price-changing direction.

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Divergence is a situation in the market when there is contradictory movement between the oscillator, for example, RSI, and the price of an instrument. In only theory – divergence warns the trader not to believe in the price movement as the situation may get reversed, i.e., the asset’s price will start moving in the opposite direction of the current trend.

Understanding the divergence can be more evident if you use a combination of indicators. One can choose among many available indicators. The Relative Strength Index (RSI), Moving Average (MA), Bollinger Bands, Stochastic Oscillator, and many more are the most commonly used. If the trader or the analyst can understand the pattern correctly, they will know the correct time to enter or exit the market without facing any loss or may make some profits. 

Trading Divergence

As the name suggests, ‘divergence’ indicates a change in direction. Here, the trading market offers the difference in price movement. The security price and the trader’s indicator should move in the same direction or suggest the same trend. But when they do not agree with each other, the result is divergence. 

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The divergence can be both negative and positive. The positive divergence signals that there may be a positive (upward) movement in the price. It is indicated when the technical indicator is moving higher, but the price is moving lower. This type of signal is known as a bullish signal or bullish divergence.

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The negative divergence signals that there may be a negative or downward trend or movement in the price. It is indicated when the technical indicator shows a lower movement, but the price shows a higher direction. This type of signal is known as a bearish signal or bearish divergence.

These divergences lay between the high and low points, shown by the price and indicators. Thus, divergences can be classified into four types depending on the price position and the indicator.

Four types of divergence in forex are:

  1. Regular Bullish
  2. Hidden Bullish
  3. Regular Bearish
  4. Hidden Bearish

Let’s understand these four types of divergences in detail.

Regular Bullish Divergence

Regular Bullish Divergence is a usual signal of an upcoming bullish trend in an instrument’s market price. This divergence indicates a lower price, but the indicator shows a higher low. Regular bullish divergence suggests that an upward trend will replace the ongoing bearish or downward trend. At this point, traders may go long, expecting a favorable return on their investment.

bullish divergence

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Regular divergences are perfect indicators of a possible reversal in the trend.

Hidden Bullish Divergence

bearish hidden divergenceHidden Bullish Divergence also shows a possible upward trend but with a signal that the trend will continue. It means that if it is an upward trend, it will continue to go upward. It is indicated when the price shows a higher low, but the indicator shows a lower low. This marks the end of a downward trend and indicates a start and continuation of an upward or bullish trend. 

Regular Bearish Divergence
bearish divergence

Contrary to the Regular Bullish Signal, Regular Bearish Signal shows an upcoming downward trend in the market. This is indicated when an asset’s price shows a higher high while the indicator shows a lower high. This divergence occurs in the uptrend that signals the traders to find a way out of the market before the downtrend approaches. 

Hidden Bearish Divergence

hidden bearish divergenceWhen the downward trend approaches with a signal of continuation, it is known as Hidden Bearish Signal. It indicates that the price will start to fall and will continue to fall for a while. This divergence approaches when the price shows a lower high while the indicator shows a higher high. 

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How to trade divergence in Forex?

To trade divergence in the forex market, you need to identify when the trading price moves in the opposite direction of the oscillator indicator, such as MACD or RSI. After bullish or bearish divergence identification, you need to enter a trade when the price touches a vital price level (previous support, previous high, Fibonacci level, Pivot level).

 

The best divergence trading strategy uses the RSI 50-level principle.

The Best Divergence Trading Strategy

The Best Divergence Trading Strategy assumes that the chart’s fastest rising or falling trend is around the 45 and 55 Relative Strength index. Therefore, if we create an experiment and make buy or sell trades based on Relative Strength Index RSI divergence, the best results for bullish and bearish trades will be when the RSI value is around level 50.

 

Divergence trading strategy steps are:

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  1. Identify when the trading price moves in the opposite direction of the oscillator indicator, such as MACD or RSI.
  2. Wait until the RSI signal is between 45 and 55 levels.
  3. Enter into a BUY trade if the RSI signal is between 45 and 55 levels, the oscillator price rises, and the price trend line is bearish.
  4. Enter into a SELL trade if the RSI signal is between 45 and 55 levels, the oscillator price is a downtrend, and the price trend line is bullish.

 

See an example of the weekly Divergence Trading Strategy:
RSI divergence - lower lows and higher highs - trend switch based on Relative strenght index

I picked a long-term period, weekly chart, to better see how the divergence strategy works.

On this GBPJPY weekly chart, we can see August 23. 2009 bearish trend. The RSI indicator is in a bullish trend. But several months’ price was going down. The bullish trend started in February 2012. So most three years in bullish divergence, and the price went down.
The bullish divergence rising trend started around 50 levels.

The same 50-level divergence principle can be applied to divergence day trading strategy, hourly chart, or daily chart. However, the divergence strategy performs best on long time frames such as daily, weekly, and monthly charts.

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Divergence in Forex Trading

With careful practice and using the right indicator, one can quickly get used to tracing divergences in the charts. But in some instances, one must not confuse slight differences between the price and the indicator’s movement as a fundamental divergence. Understanding this concept can prove to be profitable for you. For example, one who is well aware of the divergences knows that it is suggested to sell when the price is at the top and buy when the price is at the bottom.

Divergence brings out the analytical strength of a trader. Once you are comfortable trading with the divergence, you can move upward in the market with this acquired knowledge. Trading in instruments like Forex will become much easier with time. It is a fantastic tool and can be a friend who warns you of any market changes.

Filed Under: Finance education, Forex strategy

How to Trade FOMC news? – FOMC Forex Strategy

by Fxigor

Forex trading news is an integral part of the currency exchange market, as it helps traders and investors to stay up-to-date with market movements to make more informed decisions. News about global events, such as elections, geopolitical turmoil, central bank meetings, and more, can all impact the forex market.

Furthermore, economic data from around the world can provide timely information to investors and traders to help them anticipate price movements and capitalize on potential opportunities. By staying attuned to forex trading news, investors and traders alike can better manage risk, identify trading opportunities, and plan their currency exchange activities more effectively.

Currency traders must recognize the importance of keeping updated with relevant financial news. Financial reports from individual countries provide insight into how economic activity has been performing in that country which can influence future changes in the value of a particular currency.

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forex calendar

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You can use our forex calendar to monitor important forex news, FOMC reports, and NFP.

When a government releases data below expectations or shows signs of weakening economic performance, these changes can cause investors to become nervous and sell off their investments quickly.

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Therefore, having up-to-date knowledge of financial data releases is essential for traders looking to capitalize on shifts in exchange rates. Moreover, political news can also significantly impact currency prices; when there is uncertainty related to an election or political situation in a particular country or region, this can often lead to increased volatility in markets, which then provides additional opportunities for active traders.

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In addition, being aware of important events like central bank meetings or interest rate decisions by major central banks worldwide provides invaluable insight into potential price action for many currencies.

Central banks often publish minutes from their meetings which give detailed information about policy decisions and goals for growth within their respective countries which then influences investor sentiment and ultimately determines whether foreign exchange prices will rise or fall globally. Finally, being informed about international events like trade wars between nations or other significant geopolitical events can significantly influence markets’ near-term and long-term outlooks.

Therefore, staying up-to-date with forex trading news is critical for investors who want to make well-informed decisions about when to buy or sell currencies to maximize returns while minimizing risk levels. By following relevant financial news sources regularly and identifying potential opportunities before they occur, savvy traders can take advantage of profitable trends before others even know what’s going on in the market!

One of the vital news is FOMC monetary news.

What does FOMC stand for?

The FOMC stands for Federal Open Market Committee and represents a Federal Reserve System branch that directs open market operations to determine the monetary policy’s direction.

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What is FOMC?


FOMC, or Federal Open Market Committee, is a board of governors with seven members and five Federal Reserve Bank presidents. The main task of the FOMC is to control monetary policy.

The Federal Open Market Committee (FOMC) is a branch of the Federal Reserve System that plays arguably the most crucial role in setting economic policy for the United States. The FOMC consists of twelve members, seven from the Board of Governors and five drawn from Reserve Banks. This committee meets eight times per year to discuss monetary policy and make decisions regarding interest rates, purchases of securities, and other tools used to influence the money supply and credit conditions in the economy.

Given its position as one of the most influential economic bodies in the country, citizens must understand how the FOMC works. The FOMC’s primary mandate is to maintain price stability and full employment. To do this, it sets short-term interest rates by adjusting the amount of money circulating through the banking system. By increasing or decreasing this amount, they can encourage borrowing, which leads to increased economic activity and vice versa.

Moreover, they can purchase certain types of securities on open markets, such as Treasuries or mortgage-backed securities, as part of their policy toolkit. They are doing so influences market conditions by increasing or reducing liquidity available to market participants depending on whether they are buying or selling securities. All these actions have effects that ripple throughout financial markets worldwide, influencing currency exchange rates, stock prices, bond yields, and more.

In addition to setting monetary policy via the actions discussed above, members of the FOMC also use communication tools to share their views on current economic developments with Congress and public markets at large. Through statements released at regular meetings or press conferences following them, members seek to clarify expectations about future monetary policy moves – ensuring that all stakeholders understand why certain decisions were made or what trends might indicate going forward. This helps investors plan long-term strategies but also gives ordinary citizens a way to stay abreast with policies affecting them directly and indirectly daily.

 

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What does the FOMC do?


FOMC, or Federal Open Market Committee, conducts monetary policy for the U.S. central bank and acts as the Federal Reserve System’s economic policymaking body.

The Federal Open Market Committee, or FOMC, is the policymaking body of the Federal Reserve System, responsible for carrying out the nation’s monetary policy. This committee meets eight times a year to determine the economic and financial conditions that affect their decisions about setting short-term interest rates.

The FOMC was created in 1933 under the Banking Act of 1933 and consists of twelve members: seven from the Board of Governors and five from among the Presidents of Reserve Banks. The President chooses the Chairperson or Vice-Chairperson and is subject to Senate confirmation. The FOMC’s primary mandate is to promote maximum employment, stable prices, and moderate long-term interest rates to foster economic growth and stability.

To achieve these goals, the FOMC conducts monetary policy through three primary tools at its disposal: open market operations (the purchase and sale of U.S. Treasury securities), discount window lending (which provides funds to eligible depository institutions), and reserve requirements (which regulate how much money banks must hold). The FOMC sets monetary policy by adjusting these tools to meet its goals. For example, inflation may restrict access to discount window loans or raise reserve requirements to reduce financial liquidity if inflation rises too quickly.

The FOMC also works closely with other parts of the Federal Reserve System on various projects, such as research into new forms of payment systems and methods for conducting stress tests on large banking institutions. Additionally, the committee helps advise on foreign exchange rate policies and international financial stability initiatives such as Basel III capital regulations for banks worldwide.

Finally, one of the most critical functions performed by this committee is guiding future actions; this gives economic participants an indication of what may be coming down ahead and allows them time to prepare accordingly for any potential changes that could affect their plans or investments.

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At each meeting, members discuss current economic conditions based on reports from regional Fed Bank presidents and statistical data, which they analyze thoroughly before deciding whether they should alter their current stance on monetary policy or keep it unchanged in light of new information. Following this discussion, each participant votes for one of four possible outcomes: approve a policy change; no change; wait for additional information, or take no action until more data is analyzed and discussed further during another meeting.

Overall, it is clear that FOMC plays a critical role in helping ensure that America has a strong economy supported by low unemployment levels while maintaining stable prices despite changing market conditions throughout different cycles. These efforts help build confidence among businesses looking to expand operations while allowing consumers to feel secure when making purchasing decisions knowing their money will have purchasing power over time with minimal fluctuations overall due largely thanks to this committee’s efforts towards promoting both sustainable growth and financial stability across our nation’s markets today.

 

Why is FOMC meeting important for traders?

The FOMC (Federal Open Market Committee) is an important day on every trader’s economic calendar. This particular meeting is conducted eight times yearly, and all the traders must prepare for it. In the subsequent paragraphs, we will explain how to trade FOMC.

The essential gauges of the United States economy’s future, the FOMC meeting can produce a significant market movement before and after it happens.

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How often does FOMC meet?

FOMC holds eight regularly scheduled meetings during the year, around one about every six weeks, and other meetings as needed.

Therefore, the question is how you can take advantage of this meeting and use it as an integral part of your trading policy. Your initial step will be to be fully aware of what is at stake in the meeting and what opportunities can be generated from the conference.

We have assembled all this information in the subsequent paragraphs to help you plan for the future.

What Is Going To Take Place In The FOMC Meeting?

As many as seven governors of the board are going to participate in every FOMC meeting, and 5 Federal Reserve Bank presidents will discuss and decide on the economic United States’ monetary policy mainly two purposes for this meeting: one will be to review the present financial information, and the other will be to decide what type of intervention will be required.

The committee’s decision will consider vast amounts of information, including fixed investment, household expenditure, employment growth, and inflation. Although the meeting will be held privately, significant decisions will be declared immediately after completing the press conference meeting.

Three weeks following the completion of the meeting, the minutes will be published in full. The conference intends to stabilize the United States economy by increasing or diminishing interest rates.

The committee members can use much financial information to evaluate whether they would like to drive or slow down inflation regarding the supply of money and the target inflation rate of 2%.

It is a fact that the FOMC happens to be a significant indicator of the US’s economic health. The traders can use the committee’s decision to provide a broader context for their trading techniques. The decision of the FOMC can impact these particular trading instruments directly. The FOMC, together with the Nonfarm Payrolls Report, helps to indicate the present condition of the United States economy. Traders might use the committee’s decision to provide a broad context for their marketing policies. The decision made by the FOMC directly impacts some trading instruments, which are as follows:

Dollar: If the FOMC decides to enhance the interest rate, there might be an increase in demand, and the dollar’s value is likely to increase as well. Demand can increase if the FOMC decides to enhance the interest rates, and the dollar’s value might also increase.

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  • Gold: If the dollar becomes vital because of higher interest rates, it might decrease gold’s value. The traders can flock to gold if the meeting result shows a negative outlook for the US economy since it will be visualized as a stable asset that can hold its value during a turbulent period.
  • Indices: The share prices can go down in the event of any increase in interest rates, which implies that the US indices are subject to movements because of speculation.
  • Bonds: There might be an overall fall in the bonds due to enhanced rates of interest. The US economy happens to be the biggest economy on the planet, and therefore it is possible to feel the repercussions of the decision of the meeting globally.

Traders worldwide will focus on the decision, which will indicate the economic trends throughout the world and understand how other central banks can adjust their inflation policy.

Potential opportunities for trading can be opened up by this volatility surrounding the decision of the FOMC. In particular, their strategy might be adopted by the day traders to optimize the shifts that take place before and after the conference.

It is common to have speculation several weeks before the announcement, implying that the markets might be prepared for any outcome. It is essential for those who like to stick to long-term trading patterns to keep in mind that the decision of the FOMC might take a significant amount of time to influence the economy fully.

It might be possible for the traders to optimize the movements irrespective of the result by figuring out a trading technique that accounts for each meeting.

FOMC Forex Strategy

FOMC forex strategy is based on news strategy trading where traders can enter the market 5 minutes after FOMC news or when the hourly candle is closed.


There are two strategies that I use to trade FOMC news :

1) 5 minutes strategy when FOMC news is unexpected and when I see a strong price move.
2) Hourly close strategy based on the overall trend and FOMC news.

Scenario 1: Strong move FOMC Forex Strategy

If an unexpected FOMC decision causes substantial volatility, I trade after 5 minutes (5 minutes after the news). As you can see in the image, I will buy after five bullish candles close and stop loss to be low that 5-minute candle.

5 minutes FOMC forex strategy

Scenario 2: Unclear move FOMC Forex Strategy

In this case, if there are no changes in interest rate, I do not trade using 5-minute charts and do not hurry in trading. I watch hourly close, then trade based on an overall trend and volatility. I follow the primary trend and want to see an increase in volatility.
Examples from the last FOMC decisions :

FOMC decision GBPUSD chart June 2019
This chart shows a bullish trend and no changes in direction after the FOMC release. I followed the primary trend and made a buy order after the FOMC decision.

FOMC decision in May 2019 GBPUSD chart example
In May 2019. Federal Reserve officials agreed to “keep their benchmark interest rate unchanged at a target range of 2.25% to 2.5% and signaled comfort that their wait-and-see posture had steadied the economy after fears of a slowdown had sent markets reeling at the end of last year”.
USD started to be stronger, but there was no strong push below or above because the interest rate was unchanged. I waited hourly close to enter into trade. I made a SELL trade and put a stop loss on the price high just before the FOMC meeting.

Discussion about FOMC forex strategy

FOMC Forex Strategy is a popular strategy used by forex traders to capitalize on the news released by the Federal Open Market Committee (FOMC). This committee releases economic data related to interest rates, quantitative easing, and other economic indicators directly impacting currency exchange rates. By understanding how these factors influence exchange rates, traders can create an effective trading strategy to capture profits in the forex market.

When FOMC news is unexpected, a 5-minute strategy may be employed when you trade FOMC trading news. Traders should quickly assess the information and determine its overall sentiment and direction. If it is seen that there will be significant price moves due to the news, then the trade should be executed quickly to capture profits in the volatile environment. The most important part of this strategy is anticipating the price’s direction before taking action.

In addition to a 5-minute strategy for reacting to unexpected FOMC news releases, a close hourly strategy can also be used as a longer-term trading approach. This technique involves waiting for the close of an hourly candle before entering into a position based on an overall assessment of market sentiment and available news from the FOMC. This allows traders additional time to analyze market conditions and make informed decisions about potential trades without reacting instantaneously.

When using either of these strategies for trading FOMC announcements, it’s essential to keep track of current events and understand how changes in interest rates or other economic factors may affect currency exchange rates. Risk management techniques such as stop loss orders or trailing stops should consistently be implemented to protect against any unexpected losses due to unfavorable market conditions or otherwise unanticipated outcomes from FOMC announcements.

In conclusion, employing FOMC Forex Strategies can help traders take advantage of sudden movements in currency exchange rates due to Federal Open Market Committee announcements. Depending upon their level of experience, different strategies such as 5-minute reaction trades or hourly closing analysis may be used to maximize profits while managing risks appropriately. However, as with any investment activity, proper research and caution should always be taken when trading forex markets to ensure profitable returns with minimal losses over time.

Conclusion

The FOMC (Federal Open Market Committee) is essential in every business person’s financial calendar. This meeting, which takes place as many as eight times yearly, typically results in substantial market movements before and after the event. The question that might arise is how it will be possible to use this meeting as an integral part of your marketing policy. Below, we have mentioned all the essential steps to trade FOMC meetings effectively.

Throughout the world, traders will be focusing on the decision made by the FOMC as an indicator of global economic trends. In contrast, the inflation strategy adjustments made by the other central financial institutions will also be reflected.

The minutes will be published in full three weeks after the completion of the meeting. The FOMC will attempt to stabilize the economy by lowering or elevating the interest rates.

Filed Under: Education, Forex strategy, Fundamental Analysis

How to Calculate Swap Points? – Swap Points Formula

by Fxigor

An exchange rate swap is an agreement between two parties to exchange a series of payments over some time to fix the exchange rate between two currencies. Parties involved in a forex swap agree to exchange a set amount of one currency for another at an agreed-upon date in the future. The most common use for swaps is to fix the value of a foreign currency payment stream for a business or individual.

Forex swaps can also minimize the risks associated with foreign currency fluctuations. For example, if a company has income in a foreign currency but needs to pay bills in its home currency, it can enter into a swap agreement with a bank or other party to lock in the exchange rate and minimize its risk. Swaps can also be used to speculate on changes in currency rates.

This article will write about calculating swap points and their importance in forex trading strategies.

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As we wrote in our article about the Forex swap fee:

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What is a forex swap fee?

Forex swap fee or forex rollover represents the interest traders can earn or pay on positions held overnight on the Forex market. The swap fee can be applied if traders have the positions at the daily rollover point, which is 00:00 server time or “tomorrow next.”

An extended swap fee will be applied when traders keep long positions open overnight, and swap short will be applied when traders support short positions open overnight.

A forex swap is an essential part of the foreign exchange market. It represents the interest traders can earn or pay on positions held overnight. The swap fee can be applied if traders have the positions at the daily rollover point, which is 00:00 server time or “tomorrow next.” An extended swap fee will be applied when traders keep long positions open overnight, and swap short will be applied when traders support short positions open overnight.

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forex swap example

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Swap Points and Their Value in Forex Trading Techniques

Fx Swap points or currency swap points are the difference between the spot rate and the forward rate in currency pairs indicated in pips. Usually, this is carried out for a specific type of currency pair which you want to trade.

Within this, a financial concept called Interest Rate Parity is used to calculate the points. This concept reveals that after investing some money and after getting the returns for different foreign currencies, you have to compare with the interest rate without a doubt.

Forward dealers using this concept identifies swap points in Forex currency trading simply by considering the advantage or the net cost when borrowing and lending currency mathematically over a period covering the forward delivery and spot value date.

How to Calculate forex Swap Points?

The swap point calculates the cost of exchanging one currency for another.

To calculate a swap point, you need to know the spot and forward rates. The spot rate is the current market value of a currency. The forward rate is the price at which two traders agree to exchange currencies in the future.

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Formula 1= Lot x Contract Size x Current Price x Long/Short Interest / 360.

Formula 2 = pip value x swap rate x number of nights /10

forex swap formula example

To calculate a swap point, divide the forward rate by the spot rate. This will give you the number of swap points needed to exchange one currency for another.

How to calculate Swap Points using Forward Prices?

To be able to calculate the based currency of the forwarding rate with the U.S dollar, the equation below can help you:

Spot Price x (1 + Ir Foreign) / (1+Ir US) = Forward Price

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Where “Ir Foreign” means the rate of interest for counter currency, whereas “Ir US” indicates the rate of interest in the United States; using this equation, you can calculate the swap points; now you can get:

Forward Price – Spot Price =Swap Points

Spot Price x (1 + Ir Foreign) / (1+Ir US) – 1)

Swap rate calculation forex example

To calculate the swap rate for 1 lot and 1.3 price level in forex, you need to do the following steps:

Swap rate = (Contract x [Interest rate differential. + Broker’s mark-up] /100) x (Price/Number of. days per year)

Swap Short = (100,000 x [0.75 + 0.25] /100) x (1.3000/365)

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Swap Short = USD 3.56.

Rollover Swap in Currency Pairs

To understand the equation and how it works for rollover swaps, you must carry out a practical example for calculating the fair value.
Knowing Interbank’s deposit rates for each currency pair you want to deal with is extremely important. You have to understand the predominant terms based on the period of the Interbank. After learning the terms, you can compute the swap points for the currency pairs you want to deal with by creating the base currency with the U.S. dollar using the equation above.

You can calculate the rollovers by discovering the currency pairs’ interest rates. Knowing the rollover from the delivery date to the following day, where you can carry on doing business in the foreseeable future, is undoubtedly one of the best examples of a rollover swap.
You can also make and crank out money using the interest rate of currency pairs you buy and keep them for a long time if the interest rate is 0.25% U.S. Dollar for a short period. Because the interest rate is 5% for the Australian Dollar for the short term, the currency held is short, and you have to pay the currency pair’s interest rate.

A variation in the interest rate of 4.25% of currency pair is annualized in the rollovers. And you adjust to the specific time frame by implementing the tomorrow/subsequent swap rollovers for 1 year if you aren’t trading with rollovers.
Keeping an overnight position for a short AUD/USD, there will be a variation in the interest rate of 4.25% annually divided by 360 for a dealer as a rollover fee. Plus, a rollover period of one day is represented by 30/360. And a day rollover swap is defined by tomorrow/subsequent rollovers.

You’ll get the currency pairs’ rollover fee by multiplying the transaction’s sum with the interest rate for tomorrow/ next period. And by converting the currency into AUD/USD to get a fair value price, retail brokers usually charge the rollover fee in pips.

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Holding an extended position to get the sum equal to the AUD/USD dealers would try to roll over for a long-term deal. But because of the Forex broker agents’ downward offer, the amount received will be less. To find more answers read articles about “Usage of basis swaps for hedging.”

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Filed Under: Forex strategy

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