Part One
Hello All
I want to start my journal by saying I am not a professional trader, I work, I have a family, I am just an average guy that likes trading currency simply because its passive income that I do very little for. If you are looking for a get rich quick scheme, then this isn’t it. If you want to have a go at me or troll me then please move along. I am not trying to change anybody I am sharing with you how I have developed my style over many years.
Let me start by saying that I like structure and solid reasoning behind anything that I do, pure speculation for the sake of it annoys me so hence I have stayed away from the high turnover trading systems of the 5-minute chart and indicator rich schemes.
As the name suggests I have observed over many years that market prices really only follow with any sort of accuracy what monetary policy is doing, so for example lets take AUDUSD as our example pair.
Currently, in fact as of a couple of days back the RBA held firm at 0.75% and said in the commentary that it would be accommodative towards monetary policy with rates remaining low for the foreseeable future. This has been the status quo for some time, the question is what has been the market reaction to this policy been. To answer this question a little bit of history is needed, to illustrate the power of monetary policy.
In May 2015 AUDUSD price was around 0.81 and the RBA cash rate had just gone from 2.25% to 2.00% and commentary coming out of the bank was suggesting much lower rates to come. At a similar time in the US the Federal Reserve rate was between 0.00% and 0.25% but the reserve was indicating the next move to be up.
I am sure by now you can see where I am going with this. I essentially trade the overall trend of the market if the RBA is indicating a lower cash rate that means cheap money flowing into risk (stock market rises) and a lower currency reflects weakness in the economy which is why the RBA is stimulating the market in the first place. If the rate is going up then stock markets will cool some, the economy will get hotter and rates will increase as the reserve tries to stop it from overheating by increasing the price of money.
Essentially with the AUD cash rate low and indicating to the market that it won’t be moving for some time then the market will have a predominantly bearish sentiment. No currency pair trades in a straight line but it’s important to understand the sentiment of the market and what is baked into it.
That’s all for part one. I will try and break this into sections to make it easier to read and grasp. In the next section I am going to talk about actual trading but wanted to get this bit out of the way, so you understand the strategy around overall sentiment first.
Simon
Hello All
I want to start my journal by saying I am not a professional trader, I work, I have a family, I am just an average guy that likes trading currency simply because its passive income that I do very little for. If you are looking for a get rich quick scheme, then this isn’t it. If you want to have a go at me or troll me then please move along. I am not trying to change anybody I am sharing with you how I have developed my style over many years.
Let me start by saying that I like structure and solid reasoning behind anything that I do, pure speculation for the sake of it annoys me so hence I have stayed away from the high turnover trading systems of the 5-minute chart and indicator rich schemes.
As the name suggests I have observed over many years that market prices really only follow with any sort of accuracy what monetary policy is doing, so for example lets take AUDUSD as our example pair.
Currently, in fact as of a couple of days back the RBA held firm at 0.75% and said in the commentary that it would be accommodative towards monetary policy with rates remaining low for the foreseeable future. This has been the status quo for some time, the question is what has been the market reaction to this policy been. To answer this question a little bit of history is needed, to illustrate the power of monetary policy.
In May 2015 AUDUSD price was around 0.81 and the RBA cash rate had just gone from 2.25% to 2.00% and commentary coming out of the bank was suggesting much lower rates to come. At a similar time in the US the Federal Reserve rate was between 0.00% and 0.25% but the reserve was indicating the next move to be up.
I am sure by now you can see where I am going with this. I essentially trade the overall trend of the market if the RBA is indicating a lower cash rate that means cheap money flowing into risk (stock market rises) and a lower currency reflects weakness in the economy which is why the RBA is stimulating the market in the first place. If the rate is going up then stock markets will cool some, the economy will get hotter and rates will increase as the reserve tries to stop it from overheating by increasing the price of money.
Essentially with the AUD cash rate low and indicating to the market that it won’t be moving for some time then the market will have a predominantly bearish sentiment. No currency pair trades in a straight line but it’s important to understand the sentiment of the market and what is baked into it.
That’s all for part one. I will try and break this into sections to make it easier to read and grasp. In the next section I am going to talk about actual trading but wanted to get this bit out of the way, so you understand the strategy around overall sentiment first.
Simon