Automated trading is an excellent tool for developing strategies based on divergences and convergences between correlated markets. Intermarket analysis is a market-driven branch of technical analysis that studies the price relationships between different asset classes. Essentially, it is a form of macroeconomic analysis that examines the dynamics behind major intermarket correlations observed over the past 50 years.

Introduction to Intermarket Analysis

As global financial markets become more interconnected, new intermarket correlations continue to emerge. Modern financial market analysis should incorporate an intermarket approach to capture these relationships. However, it is important to note that intermarket correlations are not static — they evolve over time in response to changes in the macroeconomic environment. Inflation and interest rates are key drivers behind shifts in these relationships. Intermarket linkages tend to strengthen significantly during periods of financial crisis.

The Important Role of Interest Rates

Interest rates, closely tied to inflation, play a crucial role across all financial markets. To illustrate how intermarket relationships contribute to a macroeconomic cycle, consider the following example:

An Example of How the Macroeconomic Cycle Works

• The Federal Reserve (FED) unexpectedly lowers interest rates, which immediately weakens the US dollar exchange rate.

• A weaker dollar boosts commodity prices.

• Rising commodity prices push inflation higher.

• Higher inflation forces the FED to raise interest rates — marking the middle phase of the cycle.

• As interest rates rise, bond prices and stocks tend to fall. Investment projects are postponed, consumption declines, and unemployment rises.

• Higher interest rates also strengthen the dollar exchange rate.

• As the dollar strengthens, commodity prices decline.

• Inflation diminishes, prompting the central bank to consider lowering interest rates again.

At this point, the macroeconomic cycle completes and may begin anew.

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Trade Setups -The Art of Waiting

If you study financial markets from a historical perspective, you’ll notice that history tends to repeat itself. There is a continuous cycle that begins with fear and ends with greed—a cycle that creates many opportunities for profitable trading. However, to capitalize on these opportunities, you need the right trade setups. A trade setup refers to a specific configuration that includes basic entry rules along with a few confirming conditions.

The Importance of Trade Setups

A trade setup aims to deliver positive average performance in a high percentage of trades. Once you have the right setup, it’s crucial to wait for the market to come to you—not the other way around. Remember, there is no risk when you are out of the market. Trade setups are important for several reasons:

1. Identify the exact levels to enter and exit the market, enabling you to time your trades perfectly and avoid premature entries.

2. Recognize the true trading range and accurately calculate the risk/reward ratio of each trade.

3. Set the appropriate pending orders for stop losses and take profits.

4. Trade with discipline by minimizing fear and greed, which helps optimize your long-term trading results.

General Examples of Trade Setups

Here are some popular trade setups:

• Breakout Setup

• Continuation Setup

• Price Reversal Setup

• Range-Boundary Setup

• Triangle Setup

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What is an Automated Strategy?

An automated trading strategy is a set of rules and conditions that can create and execute trading orders without human intervention. Typically, it refers to software designed to integrate with trading platforms such as MetaTrader, cTrader, or NinjaTrader.

An automated strategy generally consists of three modules:

• Analysis Module: Usually based on technical analysis and market statistics.

• Decision-Making Module: Selects positions and determines position sizes (Money Management).

• Execution Module: Enters, modifies, or closes trading orders as needed.

Two Different Approaches to Automated Strategy Building

There are two main approaches to building an automated trading strategy:

1. Model-Based Strategy Building

Model-based strategies rely on market theories that are fitted to market data. This approach involves extensive experimentation and trial and error. These strategies are relatively easy to implement, as they don’t require extensive technical resources for data analysis. Common variables used in model-based strategies include:

• Mean Reversion
• Market Correlations
• Seasonality
• Volume Clusters
• Order Book
• Price Patterns
• Price Gaps

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Forex Trading Rollover Rates (Forex SWAP)

Different currencies have varying interest rates, and the rollover rate is a method used to balance these differences. The rollover rate, also known as the Forex swap rate, is the net interest earned or paid on any position held overnight. It can either be positive or negative, affecting the trader’s account balance accordingly.

What is the Forex Rollover Rate?

A Forex swap, or rollover rate, is a formula used to convert annual currency interest rates into daily cash returns. This rate applies to all Forex trading positions held overnight. The rollover rate is based on the interest rate differential between the two currencies in a Forex pair and can be either positive or negative.

How Does the Rollover Work for Weekends?

Since the foreign exchange market is officially closed on weekends, there is no rollover rate applied on Saturdays and Sundays. To compensate for this, most Forex brokers apply a three-day rollover rate on Wednesdays. In simple terms, the rollover rate is tripled (x3) on Wednesdays.

• Normal Swap Rate: Monday, Tuesday, Thursday, Friday

• Triple Swap Rate: Wednesday

• No Swap Rate: Saturday, Sunday

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