Summary
As you have seen, market sentiment can be used, and should be used, to time your
trade and identify profitable trading conditions. The Market Sentiment Strategy has
to be applied in conjunction with other strategies as it does not have precise entry
and exit signals. By making use of information on the net speculative positioning
of currency futures and by observing the market’s reactions to news, you will be
better equipped to gauge the market sentiment and will be able to use that extra
edge to help you see what is actually happening or is going to happen in the spot
forex market. Once you get a sense of the current market sentiment, you can then
decide whether it is best to trade with or against the sentiment, taking into account
all other factors
While it may be sensible to trade in the direction of the current sentiment
sometimes, trading against the sentiment can also be a profitable strategy, provided
that you have valid reasons to do so. For example, when the COT report indicates
extreme positioning of the market, or when the market seems to be feeding off false
euphoria on worse than expected news, it may be better to trade against the overall
sentiment. You should, however, wait for a more precise signal that the current
sentiment is wearing off before going against it, as sometimes false euphoria can
last for quite some time before resulting in a reversal. This signal could be a failed
breakout of some sort or some other pattern failure
Always keep in mind that currency prices are, after all, the expressed perceptions
of traders and market sentiment is really the blood that drives the market on the
"whole. Using the Market Sentiment Strategy can help you identify the “what
whether to go long or short of a currency); while technical analysis shows you the)
when” by helping to pinpoint the price you should enter or exit your positions"
Strategy 2
Trend Riding
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