A case study in sentiment trading
A few weeks ago I wrote a post here on trading fresh sentiment. From September 23 - October 08 I kept the news flow going for Justin over the European am session, so I thought I would put together a few examples of fresh sentiment trading that there was during that time. I meant to post this article last week, but I made the fatal mistake of downloading Apple's new OS, Catalina, to my computer. Big mistake! It took me three days to restore my machine to the condition it was before I downloaded Catalina! All the examples below are trades that I have actually taken and you can see the entries and exits marked on the charts with little arrows, so I have tried to make this as useful and realistic as possible.
Example 1
When a hawkish Central banker turns dovish
On Friday 27 September, the BoE member, Michael Saunders, made a comment which moved the GBP.He made some dovish comments which the market quickly reacted to. Why? Because Michael Saunders is known as a hawkish board member. Therefore, when a hawk makes a dovish comment it is generally going to be market moving. In the post I asked two questions designed to help us engage with the news:
- Is it new? Yes, prior to Saunders comments we expected him to maintain a hawkish bias
- Is it significant? Yes, as a sooner than expected rate cut will bring the GBP down in value
Here was the trade I took, as I was expecting the AUD to remain strong on the session, so a retracement provided the perfect time to short GBPAUD. See entries and exits below for a 40+ point profit.
Example 2
US manufacturing plummets and sinks the USD
On October 01 the US ISM manufacturing index printed a low of 47.8 vs 50.0. This was the worst report since June 2009 and was the catalyst for the recent concerns that the global slowdown is hitting the US's shores. It also came at a time as the USD was gaining in strength. The shock of the data point was obvious and the weakening dollar, associated with geo-political risk, made Gold longs a perfect choice for this trade. Here are my trade entries and exits below. I closed the long gold position after the NFP data entering at $1474 and closing at $1503.
Example 3
AUDJPY falls as risk tone is hit
On Tuesday October 08 this week we saw a retaliatory measure taken by China's Ministry of Commerce over the US's blacklisting of 28 Chinese companies due to their reported treatment of the Muslim Uighur community. This came in the context of a generally weakening risk tone and I mentioned at the time that I expected the AUDJPY to keep falling. The AUD is traded as a proxy for the yuan and the AUD is very sensitive to trade talks progress between the US and China. The JPY was bid on a typical risk off flows.I entered AUDJPY shorts at 72.25 and my TP was hit at 72.00. It was a +25 point trade.
Example 4
Silver and gold shine on safe haven plays
Also on Tuesday 08 October I flagged that Gold and silver longs looked really good with so much risk in the markets on the day. The rationale was very simple, but the trade had strong conviction. At the time there was not much more than this to say:
Risk everywhere
- Brexit going badly
Gold and silver longs look attractive as investors look for the safety of gold and silver
- US/China trade talks tense
I entered at $17.50 and exited at $20.39 as risk tone became more positive the following day:
So there you have it. Trading with fresh sentiment and a few real trade case studies. If you are still struggling with this concept go back to this post and read it again. Go over the forexlive thread for the day in question and read the context of the day. (Start with Eamonn's wrap and move your way through the day and notice how the mood changes with the headlines). Finally, consider getting a coach to help you work out how to recognise these sentiment shifts. It takes a bit of getting used to if this is totally new, but it soon becomes intuitive after a little practise
