It’s time to look at what awaits us and make an accurate trading plan by looking at the big picture. It is important to look at the catalysts that have an impact on the markets, as well as the things that we need to keep in mind so that we can make the right estimate for the risk / profit ratio.
Of all we can talk about, volatility is something that will help us determine the size of our positions. For example, if our EA is performing well in periods of low volatility, as is the case with the forex markets now, judging by Implied Volatility (IV), then we will have more confidence in our system. Of course, at times when the real volatility and volumes are too large, then we can then reduce our positions, or even stop trading until the necessary levels are restored.
Here we can see what the markets expect from the central banks. In the first column, there is the chance that traders are relying on a change in interest rates, and in the other column, how many basis points the action will be. We can analyze this through the interest rate swap market.
In the following table (left) we can see the weekly risk reversal, or the so-called 25-delta call vs put volatility skew. The more negative the number, the higher the demand for put volatility options against call, which actually indicates that traders see a greater chance of lowering the instrument.
On the right is the weekly Commitment of Trader (CoT) report, which shows the net interest of traders. It shows the basic idea behind market positioning.
Trader Aleksandar Kumanov