Forex Market Sentiment

Forex market sentiment is super-duper important.

If you’re a day trader, or you want to trade currencies for a living, you NEED to know what current market sentiment is.

This isn’t some easy-peacy technical indicator, but it’s easy to determine, I promise.

But first off…

What’s Forex Market Sentiment?

Forex market sentiment is the overall direction traders are taking a currency, based on fundamental reasons.

Buy or Sell? Forex Market Sentiment is when one of these forces is (temporarily) overwhelming the other.

For example, as I write this, the EUR has rallied across the board following bullish statements from Mario Draghi, the President of the European Central Bank (ECB).

As a result, traders are going long the EUR, but avoiding taking short positions on the same currency.

Some of you may think: wasn’t that a change in the long-term fundamentals?

How do you separate forex market sentiment from long-term fundamentals?

To that I answer:

The lines are blurry sometimes. Especially since this was the start of what seems to be a change in the long-term fundamental picture for the EUR.

Next week, something else might change the EUR’s short-term sentiment downwards (causing the EUR to go down temporarily).

Or, it might go in the same direction as the long-term fundamentals.

You get the point: sentiment can shift either way temporarily (for or against the fundamental trend).

As such, forex market sentiment tends to be short-term, sometimes changing daily.

But it can also expand to medium and long-term effects (like the example we described).

Why is Sentiment Useful?

I hope you got an idea as to why sentiment is useful in the previous section. However, let’s elaborate further.

Instead of checking some technical indicators and praying to your deity of choice, trading market sentiment well will yield you profit.

When you’re tuned into the forex market you know why a pair is moving a certain way.

And if you time yourself right (get in before the move is done), you will make money trading forex.

In a nutshell, forex market sentiment is useful because it works.

Me when I saw “it” works.

Imagine not having to guess anymore why price is moving the way it is.

Think how great it would feel to know exactly what’s going on in the markets.

You’re the one in control. Not those freaking candlesticks.

How to Identify
Forex Market Sentiment

So we know how important market sentiment is, but we don’t know how to identify it.

You’re in luck. It’s simple.

What you need to do is sit down and read a ton of forex news feeds.

The more live they are the better.

One recommendation of mine is But you can’t stop there.

You need to feed yourself information from the markets until you get a clear idea of which currencies are strong, and which currencies are weak.

if water is the Forex Market, then you need to be… you get the picture.

The reasons for such positions will likely be short-lived, but they could also last longer (as we mentioned before).

With this information, you’ll be able to trade according to the sentiment and make some pips!

To make money though, you need to enter the move before it ends, which means you should probably do sentiment research before the beginning of major trading sessions (London, NY, Asia).

This way, you’ll be prepared to ride the wave once it starts. And at the same time, you’ll be in a good position to take profits once the move starts to unwind.

Otherwise, you’ll be too late to the party (not good).

So to recap, all you have to do is read, read, and read market news.

Read what happened on the previous session (which will likely continue), and stay on top of any new developments.

You will be golden if you do.

Trading with Forex Market Sentiment

There are many ways you can use forex market sentiment.

Some examples are:

-An unexpected rate hike occurs!

You rush to buy that currency against a weaker one, and you ride the wave of profits which stop growing by the end of the session.

The move is done, so you decide to take profits. Good job.

-The fundamental picture favors the USD/JPY (example), but recent volatility in the markets caused JPY to appreciate, and the pair to fall sharply in the last week.

But now, volatility has died down, and USD/JPY is at the best price it’s been in a while.

You go long at a better price than before because of the sentiment pullback (which is now done) against the fundamental picture. Awesome.

-Market sentiment for the session is aligned with long-term fundamentals for a currency.

You decide to ride the strong short-term rally and keep the trade open to let your profits run in line with the fundamental picture.

Thanks for following today’s sentiment. Ca-shing!

One important point to keep in mind though:

Trading sentiment is often short-term, which means many day traders will close their profitable positions to take profits near the end of the session.

This effectively undoes a portion of the move (if not the entire move).

Thus, it is important to hone your skills and experience to be able to determine when sentiment is strong enough to keep a trade on for days, versus when to take profit before the end of the session.

Closing Remarks

Forex market sentiment is how most traders view a currency (buy or sell?)

This is important because this “consensus” view on a currency is strongly reflected on price, every single day. Thus, you can make a ton of money day trading market sentiment.

You can get a clear idea of market sentiment by immersing yourself in forex news feeds.

Those feeds better be updated quickly (live feeds are best).

Sentiment from the previous session carries onto the new one (what happened in London session before NY one?).

You can use knowledge of market sentiment to enter or exit trades in different, strategic ways.


That’s it.

 See you soon,

 Emil Christopher,

The Forex Economist

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