Trade In Line With Sentiment? Trading in line with sentiment simply means trading in line with the narrative at hand in the markets.
Mainly sentiment is determined by data. There is a reason why the Fed and every other central bank always say that they remain data-dependent.
In extreme cases, there can be other factors that drive sentiment such as geopolitical tensions, bank failures, or some major event that affects the world.
So what does trading in line with sentiment mean?
What it means for me as a trader is finding the best relative value pairs to trade. Meaning I want to find the strongest currency and then pair it with the weakest one.
Finding and trading in line with sentiment means you find which currency has more strength compared to the other currency. Then you go and find the respective pair and you want to buy the stronger currency.
Doing that you have a higher probability of the trade setup coming out your way because data and sentiment are on your side.
This doesn’t mean that you will win every time. This simply means you have the odds in your favor
For this example, we will cover the USD and EUR with the current sentiment in the markets.
Please note that the example provided is the current stance at the time of writing the article.
On the one side of the scale, we have the US dollar, where unemployment is at a low level, the growth is stagnating, the interest rates are over 5.50% and we have inflation on the rise. And we also have the fed which is hawkish.
On another hand, we have the EURO, where unemployment is at a low positive level, the growth is down, interest rates are 4.50% and inflation is dropping. And we have the ECB ( European Central Bank) that is dowish.
That gives us an overall strong USD and an overall weak EUR.
So how to trade in line with sentiment?
- Go through every currency and determine their strength
- Compare currencies and find the Strong vs Weak
- Find the direction of a pair.
- Go on your charts and find your opportunities in that direction.
This is what we call trading in line with sentiment and finding the highest probability setup in the markets.
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