How are you feeling today, Mr Market?
The importance of gauging market sentiment 101
Having returned from Dubai where I taught around 150 people how to trade the financial markets it has reminded me once again of going over the basics of trading. One of the most foundational aspects to grasp is that of sentiment, or put simply, the mood of the market. If you are day trading you must make this a priority to grasp if it is not already under your belt. In fact if you are struggling with your trading it may be because this concept is new to you. So, if it is new to you, please read on. Also, if it is not new to you, please consider leaving a comment as to how you gauge sentiment on a day and why you, as a trader, see that as important. (It helps those who don't know realise they need to know).
What is sentiment?
Sentiment is, quite simply, the present mood of the market. The market, like people, has different moods depending on what has just happened. As traders we are always wanting to know what the current sentiment is.
How to gauge sentiment
The simplest way to gauge market sentiment is to read a good market wrap. You can check out the session wrap here on the site. Or you can get a paid subscription to one of the large news companies. Some of the basic packages are geared at affordability to retail traders, so try out a few free trials. Having a pre-market open report to read can save you a lot of time trying to piece together yourself what is or is not important from the overnight session.
Use a squawk to gauge sentiment
You may also want to consider buying access to a squawk service as this will let you know how sentiment changes during the day.
How to use sentiment to make trades?
First of all, make sure the sentiment is fresh. The market craves fresh news. If you want some examples of trading fresh sentiment, check out this article I wrote here. Then you simply make sure you do the number one thing. What's the number one thing? It is to pair a weak currency against a strong currency. Then, apply your technicals to that pair you have chosen from a sentiment bias. For more details, see this article I wrote here on the number one thing.