The importance of gauging market sentiment 101

By Giles Coghlan, Chief Currency Analyst at HYCM

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.

What is sentiment?

The 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 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 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. 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.

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