Understanding the Market Sentiment

Sentiment in Forex Trading

Keeping track of major economic indicators and financial news has been my key to trading success. In fact, I’d say that checking the news on a daily basis dictates how and when I trade the currency markets. This is because I like to ‘tune’ into the market and gain a deep understanding of why it is moving. This phenomenon is referred to as ‘sentiment’ – and it’s a vital skill for traders to refine and practice.

In short, sentiment explains the current market patterns and trends. For example, the fundamentals may show reasons to buy the Japanese yen, but the market may be worried about an impending announcement or an ill-judged quote from a government official. This then causes traders to lose confidence and sell the currency.

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Despite not posing a problem to long-term traders, these market shifts can seriously impact the profitability of short-term traders. This is especially true if traders are not alert to news and events.

Managing Trades With Fundamental Analysis

Once I’ve placed a trade, I manage it by employing fundamental analysis and sentiment. This is advantageous as it provides me with ‘the big picture’. If I read the market sentiment correctly, I have good reason to remain confident in my original trading position (even if the price moves against me – because I know the long-terms prospects are good.) This only changes if there’s another big shift in sentiment.

if the bias is short, for example, but a string of positive economic data is released during the trading session, there is a good chance that the sentiment can reverse and change to a long bias. It’s crucial for traders to always check the news feeds and know what is moving the markets.

Practice Makes Perfect With Sentiment

The key to successful trading is practice and evaluation.

Plan your trades thoroughly, assess the outcomes and monitor how your management of the trade affected your profits. (Click to Tweet)

It’s also important to be open to development. I am always learning and experiencing events that move the markets in a different way. It’s vital for traders to accept that nobody knows all of the answers. There is always more to learn.

P.S. If you want to learn more about how I trade, check out the link below:

Jarratt Davis – Free Forex Course