How To Gauge Mixed Market Sentiment?

Knowing when not to trade is just as important as knowing when to trade, this video will help you identify when to stay out.
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Gauge Mixed Market Sentiment

Just quickly following up on a question from Joseph asking how we can gauge when the market is looking for fresh catalysts to move. So, thanks for the question Joe.

Now, trading during mix sentiment can be a very tricky and sometimes a sticky situation because there will no doubt be movements in the market. But they might not always be tradable from a high conviction tradable opportunity.

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So, the very first and arguably the easiest way to know when the market is waiting for fresh catalysts is to see whether there has been any new fresh catalysts to actually move the market.

So, if the market is moving, but there isn’t any fresh fundamental news flow that is acting as the prime driver, then the market will no doubt be waiting for something fresh to kickstart some momentum.

Now, apart from just looking at whether there is any new, important news, we can also consider the overall market movement itself. So, are we seeing cross asset class movements that suggest the same type of thing? So for example, is equities moving up or down? Is commodities moving up or down, bond yields moving up or down, currencies up or down? And are they moving in line with each other? Or are there any divergences between them? So, you might be seeing commodities trading up and equity trading up, but you might be seeing bond yields, tanking and high beta currencies also moving down and suggesting a more mixed return.

Now, it doesn’t always have to be in that order, or that specific correlations, it’s just an example. But the point is that there’s no correlation between the major asset classes.

So, some of the classic correlated moves are just not occurring. Now, that is normally a good sign that the market is waiting for a particular catalyst, the sentiment is a bit more mixed.

Now apart from cross current moves, in terms of asset classes, what you might also be seeing is just muted or range bound movements across the board. And this is usually also something you’ll spot when the market is waiting for a new catalyst or waiting for something like an important data point. So let’s say we have something like a very highly anticipated NFP report coming up.

What you might be seeing before the event takes place is the markets trading a little bit more cautiously and trading more sideways and muted until that event actually takes place. Now this does go for all the currencies, not only the risk sensitive ones, of course, you might see some upside and downside in currencies across the board. But it might be happening without any meaningful news to drive it.

So that’s always something to keep in mind. Now, when the market is trading so indecisive, it can be very dangerous time to be trading. So during those times, it’s best to rather sit on the sidelines, stay prudent until you see that clear opportunity to jump in and trade. So, what you don’t wanna do during times like this is be a chaser, so trying to chase the price up or down, just because there’s a movement, but it’s without any catalysts.

So, moves might also be exacerbated when the market is more mixed because there might be thinner liquidity and oftentimes lower volume in the market. And those type of moves can turn against you very quickly if you decide to just jump in and chase without any clear catalysts for the market to move.

So always be mindful of whether the market has a reason to be selling or buying a specific instrument. And if not, then look for something else in the market.

So arguably, when the market has no clear fundamental or sentiment driver, those might be times when you can consider more technical levels to your advantage as the market might be paying more attention to the key levels in the market. And looking to take advantage especially from a value trader point of view, looking to capitalize on a bargain buy or a bargain sell from key levels, with the bigger picture fundamentals in mind.

So that is something that you can look at but mostly without any clear fresh catalyst, it’s always best to stay prudent. Stay on the sidelines and wait for those great clear tradable opportunities. So, hope that helps Joe, any other questions just let us know.

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