The Importance of Gauging Market Sentiment 101
One of the most foundational aspects to make sure you have a handle on is that of sentiment, or put simply, the mood of the market. If you are day trading, you must make this concept a priority. In fact, if you are struggling with your trading it may be because this concept is still new to you.
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 always want 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 on forex websites. 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 service 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 do I use sentiment to make trades?
First, make sure the sentiment is fresh; the market craves fresh news. Then you simply make sure you do the number one thing. What’s the number one thing? To pair a weak currency against a strong currency. Then, apply your technicals to the pair you have chosen from a sentiment bias.