Forex strategies on discount rates
It so happened that after 10 years of acquaintance with the foreign exchange market, I almost completely abandoned the use of overly complex trading options.
Practice has shown that the more components that should be taken into account when forming a strategy, the greater the likelihood that something will go wrong.
In addition, if you do not fully understand the essence of the forex trading strategy you are using, invented by someone else, this also does not add efficiency to your trading.
And the process of preparation, setup, testing sometimes completely discourages trading, at least for me.
Therefore, to make a profit, I almost always try to use the simplest Forex strategies that do not require lengthy preparation and deep knowledge.
The discount rate or interest rate is set by the central banks of the country of issue of the currency. It is its value that is used when providing loans to commercial banks and it is it that affects the exchange rate.
This means that you can always use a change in this indicator as a signal when opening new transactions when trading forex.
Impact on trend direction:
- An increase in the discount rate leads to an increase in the price of the currency, which means it causes an increase in its exchange rate.
- An increase in the discount rate makes the national currency cheaper, forming a downward trend in Forex.
That is, if the discount rate has increased, we open transactions to buy this currency; if the rate has decreased, then we sell this currency. In this case, you should pay attention to the quality of the base or quoted currency of the selected currency in the currency pair.
It is not uncommon for a change in exchange rate to begin even before the announcement of the National Bank’s decision.
The market reacts to analysts’ forecasts and therefore, if these forecasts are confirmed, there may not be a noticeable movement in the exchange rate. Practical application
You can view the current interest rates for the most popular world currencies on the page - http://time-forex.com/uchetnye-stavki
But we are not interested in the values themselves, but in their changes. That is, you need to track news in the economic calendar - http://time-forex.com/kalendar :
In the calendar we find:
• The decision on the interest rate
• The time of publication of the news
• We determine the currency that it will affect in our case, this is the South African Rand
• And the probable forecast, if available
In the event that the forecast differs from the previous indicator, with a high probability this already has an effect influence on the trend.
In our example, both indicators are the same, which means that if a change in the discount rate does occur, it will lead to the start of a new trend for the USDZAR currency pair.
To work, use almost any currency pair, the main thing is that it is available in your broker’s .