Forex Talking

Trading Strategy During the Central Bank Intervention:-


Infrequently, the Central Bank (CB) in a particular country, independently or with support from CBS other countries, runs intervention in the currency market by buying the weakening currency in an attempt to artificially preserve a stable pace. Bank of Japan (BOJ) is especially noticeable for such action. It makes sudden and large scale purchases of currency packages, thus keeping the yen rate against the dollar, or vice versa. It depends on the end of the currency channel acceptable to the Central Bank, which is the current rate. These actions of CB are always strong, quick and big amplitude of movement that can lead to tragic consequences for traders, resulting in a complete loss of their trading account. If traders are not ready for such action, this movement may cause irreparable damage to their accounts for several minutes.

To reduce the risk of loss during the sudden intervention and the use of intervention in their favor, traders must know and remember features of this phenomenon, which is not rare in the foreign exchange market.

The first sign of an activity is the direction of its movement. Intervention is always carried out in the direction opposite to the main current trends. This can be seen in daily and weekly schedules in exchange rates. You can find it with the figure given below.

The second feature is the amplitude of movement. It must be remembered that the intervention is aimed at correcting the significant current rate. This range varies from 300 to 600 pips, depending on the extent of intervention and the number of its participants. During the joint events, where several CBs different countries to participate in them, the amplitude even more. There are almost no instances where the market will revert to their levels before the intervention during the same working day. It is also important that as a result of intervention, even the minimum amplitude (300 to 350 pips) from market fluctuations gives us an excellent opportunity to do lucrative deals almost no risk.

The third feature, which is also favorable to the trader, is that rumors and information about potential interference appear on the market for some time before the actual intervention. This allows a trader to take the necessary steps, and get ready for such events.


Based on these grounds, the trader should use the following strategies and tactics for the possible upcoming intervention:

With the information that the current level of prices is unacceptable for certain CBs, you come to the conclusion that the market went into a zone where the possibility of intervention is high. Since then, at the beginning of each trading day, you place trailing stop-loss order to open new positions at a distance of 70 to 100 pips from the current market price. You must do so on the assumption that if this movement quickly, then your stop-loss order will automatically, and much earlier than the market will make its minimum possible amplitude during the intervention.

In addition, observe the behavior of the market, as several different scenarios of further developments are possible. If the intervention was launched, but for some reason, the market is back and is close to your stop loss order is slowly, you should cancel your stop-loss order and transmit it to continue, maintaining the same distance from 70 to 100 pips from the current price. The slow movement in the market (even in the same direction from which possible intervention should be initiated) is unacceptable, because my final stop loss order has been placed only on the expectation of the next event.

If the market continues its movement in the trend, then every 30 to 40 pips away from its progress, you must place your trailing stop-loss order at a level that is closer to the current market price. (It is important to know that you should always begin the deployment of new stop-loss order, and only after that, cancel the old so as not to miss the start of the intervention) Let us suppose that a quick and amplitude of movement has occurred. It has gone through your stop-loss order and opened a new position for you automatically. Immediately after this, you must find the cause of this movement because it may be caused by factors other than interference.

At times such displacement can be caused by a reaction to market rumors that the Central Bank, who is about to begin intervention was checking rates. This movement also may be the result of a very nervous market reaction to any other events, news and rumors. If the intervention had not been started, you must open square, which was taken as soon as you find that surge of activity in the market was not due to interference. You should do so regardless of whether that position gives you the profit or loss at the time of its liquidation. If the information about the beginning of an intervention has been confirmed and by the moment you find out about it the market has passed less than 300 pips, you can strengthen the position. You can do it either at once or after the pullback of 50 to 70 pips from the maximum price level of the last movement.

When the market reaches the amplitude of movement from 300 to 400 pips, as a result of this intervention, you can pocket profits in full or in part. If elimination is a partial, trailing stop-loss order should be placed for the remainder of the contract. You should not place it beyond the price of the initial position, so that the profitable trade can not be his exact opposite.

Timely fixation of profits should be done, and speeches, usually begun, as a last resort remedy the adverse market rates. In most cases, they are contrary to the objective circumstances of a fundamental nature. That is why the correction effect of the intervention is often precarious. A few days after the intervention, the market may return to the original level before the intervention. Here, new dangers of the CB’s repeated acts might occur. You must avoid a situation where a successful open position, which was profitable from the outset, may become its opposite extreme. You should avoid the loss of most of the profits as well. To achieve this goal, you must correct your profits immediately after the market amplitude reaches 300 to 350 pips, or protect it, putting the final stop loss order. Of the latest BoJ statements were made only to prevent the rapid decline in the Japanese yen, USD / JPY range, usually less than 300 to 350 pips, and you should change your tactics, respectively, by having closer entry stops, and taking faster profit, if you're not ready to take any chances.



(Every CB’s intervention usually provides a very good opportunity to make a profitable trade with very little risk or even no risk at all. With a CB on your side, you can join its action and ride the market on its expense. Here you can see a chart that shows a huge day range caused by such an event.)

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