(logo swooshing) – In this video, we'll be explaining how you need to study anddissect market expectations leading up to a central bank event.
Now, we will also be showingyou how the money is made from waiting for the bank to act or speak in a way that deviates from those market expectations.
This is how professional traders make money from central bank statements.
Hi, it's Arno here from Forex Source and before we begin, hit the button below to follow or subscribe sothat you will be notified every time that we release a new video.
Okay, so you might be aware that currency markets move heavily based around central bankpolicies and statements.
Now, if the interest rate is any lower the currency will head lower too and generally vice versa for arising interest rate as well.
Now, you might also be awarethat all major central banks meet at regular intervals each year to discuss andadjust their monetary policy.
Now, traders followthose events very closely because of the impact thosecentral banks and statements can have on currency prices.
Now, the key to makingmoney from these events is not necessarily inwhat the bank says or does but instead it's allabout how those things that they do and say deviates away from what the market wasexpecting them to say or do.
Another thing you need to know is that central banks will rarely just adjust its interest rateup or down out of the blue.
If they did that, the price of the currencywould move wildly and the volatility would be very damaging.
So, they tried to avoid allof the unnecessary volatility and the way they do that isthey move in very small steps.
So, the corner stone of thesesmall steps is the language and the communication alsoknown as forward guidance.
Now, what this all means isthat they will very subtly try and tell the market whatthey are planing to do next.
Now, if they are toodirect in their language they risk volatilityand market instability, and if they are toovague they run the risk that the markets miss the pointof their message entirely.
So, one of the tacticsthat the central banks use is to alter specific wordings inside their written statements.
Now, traders can then read through these statements and compareto the last statement that was released to seewhere the changes came in.
Now, these very tiny changesin a word here and there is enough to give themarket little clues about what the bank might start to do next in terms of monetary policy.
Now, rather than just ripping up the previous statement andrewriting it every time, the banks will evolvethese statement gradually over several meetings.
Now, changing a few wordshere and there just enough so that the market can get the hint without actually confirminganything in black and white.
Now, the goal is tokeep the market guessing but to keep them guessing inthe correct general direction.
So, let's quickly takea look at a statement with these sudden changes highlighted.
Now, this statement is from the fed or the federal reservebank in the United States.
Now, as you guys can seethe changes are subtle and professional traders and analysts quickly get used to interpreting these central bank languagesand statements very quickly.
Now, when they detect aslight shift in language they begin in speculate which way the bank might move next in termsof their monetary policy.
Now, all of this translatesinto currency price moves as the traders start toreact to these changes.
So, if you want to make more money from central bank statements remember to research themarkets current expectations.
That's always your first step.
Then you need to study each statement and compare to the previous one.
Over time, this willhelp you to understand the central bank language and how you can startto make money from it.
Now, to help you shortcut this process you can also follow professionalanalyst in the market that interpret all ofthese statements for you and give you the meat of the information in their concise report.
Now, guys, thanks for watching this video.
This idea for this videocame from the questions you guys asked us in the comments section about fundamental analysis.
So, please keep all ofyour questions coming.
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We'll catch you guys in the next video.