Forex Sentiment LevelTrading Plans
An economic bias alone is not enough to place a trade. There is a delay in correlations between economic trends and currency trends, which means even the best economically developed ideas need to be timed. You must still accurately time your entry. We use forex sentiment and technicals for that purpose.
This is where sentiment and technical analysis comes into play. Combined, they restrict your trade entries so you only trade when appropriate. This restriction is important. An accurate idea traded too early, or too late, can still result in losses. Usage of timing filters avoid that problem.
For sentiment, use Commitment of Traders Reports to help time your currency positions before moving to the technical level. The report needed is financial futures data, which includes currency futures positions.
There are two categories for your focus. The first is the large speculators like hedge funds. These groups seek capital returns. They will trade with the anticipated trend to earn profit and avoid losses.
The second is commercial hedgers. These groups seek to avoid any loss. If the price after exchange rate conversion makes their products too expensive people won’t buy them at stores. If the price after currency conversion makes their product too cheap, they may not earn adequate profit from sales. They hedge against anticipated currency trend changes to ensure that their products’ sales prices are not hurt by fluctuations in currency value.
There is a third group, that consists of small speculators or retail traders. They are almost universally wrong, and should be completely ignored. Focus on the big players.
Since both speculators seeking profit and commercial hedgers seeking protection contradict each other, your focus should be aligning yourself with large speculators while being opposite to commercial hedgers. This is best when they are at polar opposites and turning towards each other. When buying, seek rallies from large speculator troughs while commercial hedgers fall from peaks. When short selling, seek rallies from commercial hedger troughs while large speculators fall from peaks. When your economic bias aligns with the Commitment of Traders, your trade is potentially preferential for the market. The entry must still be timed with technical analysis.
For example: Your economic bias is Bullish for the Australian Dollar and bearish for the United States Dollar. You want to see the Australian Dollar rising with large speculators and falling with Commercial Hedgers. You want to see the US Dollar falling with large speculators and rising with commercial hedgers. If true, you will purchase the AUD/USD currency pair, assuming Technical Analysis shows the AUD/USD pair in an uptrend. You’d buy on a favorable buy signal with low risk.
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International Economic Analysis:
- Major Currency Economic Summaries
- Performance of Major Imports and Exports
- Mandates of Central Banks versus Expectations
- Performance Indexes of Major Economies
- Economically Correlated Currency Projections
- Large Funds Currency Sentiment Readings
- List of Technical Indicators to Look For
- Occasional: Foregin Exchange Technicals Markups
American Markets Analysis:
- Summaries of American Economic Structure
- Performance of Major
- Federal Reserve Mandate versus Expectations
- Performance Indexes of U.S Economy
- Economically Correlated U.S Dollar Projections
- Large Trading Fund Index Sentiment Readings
- Market Wide Earnings Versus Valuations
- Fundamental Ranking of U.S Business Sectors
- Best and Worst Future Consensus Estimates
- Occasional: Firm Fundamental Strength Report
- List of Technicals to Look for While Trading
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