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How to define market sentiment?

  • #1
  • First Post: Dec 11, 2011 3:04am Dec 11, 2011 3:04am
Hello traders,

I'm still learning about this market sentiment thing and i need help from experienced traders like you.

It's been 2 weeks I've tried to define the market sentiment, but i found some difficulties. I want to ask something:

If there are good news for both of the side, will it makes the sentiment neutral?
I think the answer of this question is depend on what news it has because it maybe having different impact, right? But then How can we say it that it have different level impact (ex. a news is considered having more impact that the opposite one) so that the market sentiment is still strong for one direction?

Thanks for your help
Be the market
  • #2
  • Dec 11, 2011 7:45pm Dec 11, 2011 7:45pm
Risk, Time, Return

The 3 main factors that any money manager is concerned about. You could write a lot on this but to keep it simple as your signature suggests, put yourself in the shoes of the only people that hold weight in the market; Institutional investors, Hedge Funds etc (people that move the market and have constant market exposure) and ask yourself a simple question with the above 3 parameters in mind; "Where is the money running to today, this week, this month, this year?".

Another hint; When there is risk of a systemic banking crisis no one (that matters) is much going to care how many new jobs were created in Australia last month. Bloomberg, Reuters etc are great to get an idea of what the world will be waking up to on any day, but you have to be a bit smarter than to just assume positive headlines = a bullish market, and realise that just because it's all positive on the news feeds does not make it a buying opportunity, also doesn't mean it's not either. Often it will be the best time for the big guys to sell, particularly when the market is on highs.

Another example; intraday sentiment may push the market higher for whatever reason (growth hype, market rumors whatever) But this may simply provide medium term investors bargain prices at which to sell.

Just takes practice and observation. Watch reactions to important news releases and ask yourself Why? How? Who?

There's no golden rule or formula, or indicator that can tell you what the sentiment is, you need to develop some "street smarts". It's really just a big game and information is not on our (retail traders) side. The biggest hint I can give you is the fact that 95% of traders lose. I would hazard a guess that 95% of traders are also exposed to the same information and therefore lead to the same slaughter, over and over.

Again, all that matters are those key 3 words and the major market participants. Risk, Time, Return.

Think, Learn, Adapt, and keep it simple. Focus on one pair while you're learning. What moves it? What's moving it today?

All that is useless without pointing out the fact that, sometimes (and often) things need to go down before they can go up and vice versa.

Good luck.
Time hides Nothing
  • #3
  • Dec 11, 2011 8:43pm Dec 11, 2011 8:43pm
Wow, that's very nice, clean, and simple explanation. Thanks a lot

as a conclusion i try to underline the most important thing:

Why? How? Who?

What moves it? What's moving it today? : This thing must be known before making a trade, it gives a trader insight.

"Where is the money running to today, this week, this month, this year?". : When we know this thing, we could estimate the risk of a trade. Pick the better one.

The biggest hint I can give you is the fact that 95% of traders lose. I would hazard a guess that 95% of traders are also exposed to the same information and therefore lead to the same slaughter, over and over. : Analyzing information solely on what the public media gives won't make a good trade in the long run. Get smart.

you have to be a bit smarter than to just assume positive headlines = a bullish market, and realise that just because it's all positive on the news feeds does not make it a buying opportunity, also doesn't mean it's not either. Often it will be the best time for the big guys to sell, particularly when the market is on highs. : Think like the big guys do, based on where the money goes.

intraday sentiment may push the market higher for whatever reason (growth hype, market rumors whatever) But this may simply provide medium term investors bargain prices at which to sell. : After you think like the big guys, now act like the big guys do.

Risk, Time, Return : Traders that make big move must considered this 3 point. So most likely they'll trade when there is a good risk-return ratio. And that's is our chance to do so.

Thanks CindyXXXX ...a guy!

Good luck too
Be the market
  • #4
  • Dec 11, 2011 8:54pm Dec 11, 2011 8:54pm
From the beginning the market sentiment is simple, because there are only 2 circumstances.

Risk Appetite / On, usually the dollar bearish
Risk aversion / Off, usually the dollar bullish

still not simple enough?

Just look at the commodity currencies GBPAUD and AUDJPY (both have inverse correlation). Under normal circumstances, meaning there is no intervention or fatal data from one side:

if GBPAUD up (AUDJPY down) then the sentiment is 'risk aversion.
if GBPAUD down (AUDJPY up) then the sentiment is 'risk appetite.

You decide which TF you want to play.
My advice if you are in H1 then as a guide is D1.

simple.

btw, now asia is a bit 'risk aversion.
  • #5
  • Dec 11, 2011 8:57pm Dec 11, 2011 8:57pm
Quoting alvseek

Risk, Time, Return : Traders that make big move must considered this 3 point. So most likely they'll trade when there is a good risk-return ratio. And that's is our chance to do so.
The major point is risk management, this is 'their" main focus, this is why the Euro situation will always take priority over Growth hype, when you remove that risk, then it will be a competition to catch the growth train and investment will flow into growth markets like commodities and Stocks again (which of course affect currencies). People will try and anticipate this transition before it even happens in hope of getting in first, which is pretty much the story of the past few months in the current market. But remember it's always a competition for the best price. Risk/ return is absolutely correct. But Risk management will always take priority.

It's not black and white, remember there are short term players, medium term players, long term players at all times. Short term will liquidate to medium term, who liquidate to long term.

Once you combine those 3 points and use it to trade the next key factor is liquidity... But thats another story.

No worries.
Time hides Nothing
  • #6
  • Dec 11, 2011 8:59pm Dec 11, 2011 8:59pm
Quoting gsantri

if GBPAUD up (AUDJPY down) then the sentiment is 'risk aversion.
if GBPAUD down (AUDJPY up) then the sentiment is 'risk appetite.
In hindsight yes .
Time hides Nothing
  • #7
  • Dec 11, 2011 9:12pm Dec 11, 2011 9:12pm
Quoting CindyXXXX
In hindsight yes .
hehe.. Cyndy how is life ? hope all is good with ur exam
  • #8
  • Dec 11, 2011 9:13pm Dec 11, 2011 9:13pm
Quoting CindyXXXX
The major point is risk management, this is 'their" main focus, this is why the Euro situation will always take priority over Growth hype, when you remove that risk, then it will be a competition to catch the growth train and investment will flow into growth markets like commodities and Stocks again (which of course affect currencies). People will try and anticipate this transition before it even happens in hope of getting in first, which is pretty much the story of the past few months in the current market. But remember it's always a competition...
Okay. then, the Risk, Time, and Return is also come in order?

For the time being i'll stuck on this market moves first. Then i'll go for that another story. And when trouble comes again, i'll be asking for help again
Be the market
  • #9
  • Dec 11, 2011 9:17pm Dec 11, 2011 9:17pm
Quoting gsantri
From the beginning the market sentiment is simple, because there are only 2 circumstances.

Risk Appetite / On, usually the dollar bearish
Risk aversion / Off, usually the dollar bullish

still not simple enough?

Just look at the commodity currencies GBPAUD and AUDJPY (both have inverse correlation). Under normal circumstances, meaning there is no intervention or fatal data from one side:

if GBPAUD up (AUDJPY down) then the sentiment is 'risk aversion.
if GBPAUD down (AUDJPY up) then the sentiment is 'risk appetite.

You decide which...
Halo gsantri,

the trouble when using chart is that it'll be too late when the sentiment is already change. And also it'll be a fractal problem when you look into higher TF...
Be the market
  • #10
  • Dec 11, 2011 9:25pm Dec 11, 2011 9:25pm
Quoting alvseek
Halo gsantri,

the trouble when using chart is that it'll be too late when the sentiment is already change. And also it'll be a fractal problem when you look into higher TF...
The most sensitive instrument in the market is commodity.
I found GBPAUD and AUDJPY always leading a bit.

just watch the charts, define the supply/demand area or S/R in it and get the feeling.
  • #11
  • Dec 11, 2011 9:46pm Dec 11, 2011 9:46pm
Quoting gsantri
The most sensitive instrument in the market is commodity.
I found GBPAUD and AUDJPY always leading a bit.

just watch the charts, define the supply/demand area or S/R in it and get the feeling.
Hmmm... you're right.

It's new to me. It's quite interesting actually...
Be the market
  • #12
  • Dec 11, 2011 9:54pm Dec 11, 2011 9:54pm
Quoting alvseek
Okay. then, the Risk, Time, and Return is also come in order?

For the time being i'll stuck on this market moves first. Then i'll go for that another story. And when trouble comes again, i'll be asking for help again
When you start thinking "which order" then you are already trying to systemize it. Don't do this... This will bring you unstuck, you need to keep an open mind, all factors will be present always. How does fti put it "rigidity kills".

Just focus on what is moving your pair and watch. over time the rest should slowly present itself and new questions will lead to new answers. Google is your best friend. Let the analysts do the hard work for you. You don't have to become an expert in fundamentals or macro economic behavior. But any knowledge is good knowledge.

Like Gsantri said, you just need to get a feel for how things work, some people can do this with charts alone. Just depends on your strategy and what suits you personally and what you're comfortable with.
Time hides Nothing
  • #13
  • Dec 11, 2011 10:43pm Dec 11, 2011 10:43pm
Quoting CindyXXXX
When you start thinking "which order" then you are already trying to systemize it. Don't do this... This will bring you unstuck, you need to keep an open mind, all factors will be present always. How does fti put it "rigidity kills".

Just focus on what is moving your pair and watch. over time the rest should slowly present itself and new questions will lead to new answers. Google is your best friend. Let the analysts do the hard work for you. You don't have to become an expert in fundamentals or macro economic behavior. But any...
well said
  • #14
  • Dec 11, 2011 10:52pm Dec 11, 2011 10:52pm
Okay, thanks for the advice
Be the market
  • #15
  • Dec 11, 2011 11:06pm Dec 11, 2011 11:06pm
this is not the holy grail but you could look at correlations in the market

look at the equity markets and how they are performing

risk on the markets in the green the yields higher
risk off the markets in the red the yields lower

risk on usd bearish (means positve correlated currencies aud, gbp, eur should move higher, and conversely jpy,cad,chf the chart should look bearish

risk off usd bullish (and jpy is tricky cause it tends to appreciate too, all safe heavesn appreciate, and gbp, aud, eur move lower
AVT INVENIAM VIAM AVT FACIAM
  • #16
  • Dec 11, 2011 11:59pm Dec 11, 2011 11:59pm
Quoting the redlion
this is not the holy grail but you could look at correlations in the market

look at the equity markets and how they are performing

risk on the markets in the green the yields higher
risk off the markets in the red the yields lower

risk on usd bearish (means positve correlated currencies aud, gbp, eur should move higher, and conversely jpy,cad,chf the chart should look bearish

risk off usd bullish (and jpy is tricky cause it tends to appreciate too, all safe heavesn appreciate, and gbp, aud, eur move lower
Wow, thanks for the information
Be the market
  • #17
  • Edited 2:20am Dec 12, 2011 2:09am | Edited 2:20am
Quoting gsantri
btw, now asia is a bit 'risk aversion.
risk aversion / risk off sentiment continued to London session so far.

almost all stock markets in europe now in RED
.
Attached Image (click to enlarge)
Click to Enlarge Name: asia1212.GIF Size: 60 KB
  • #18
  • Dec 12, 2011 3:16am Dec 12, 2011 3:16am
trying to define market setiment right now is like trying to define the moods of a bipolar person
  • #19
  • Dec 12, 2011 7:55am Dec 12, 2011 7:55am
Quoting gsantri
risk aversion / risk off sentiment continued to London session so far.

almost all stock markets in europe now in RED
.
Ok, That's a good example for market sentiment through correlation with stock.

When you see the London stock, it's all down, but on the other hand the US stock is also down.

It's both bad news. How we decide the sentiment then? neutral?

of course if we'll see that the EURO at disadvantage because the debt crisis. The sentiment is going for USD. I know actually it's not that simple to determine. it's just a rough anlysis....
Be the market
  • #20
  • Dec 12, 2011 8:24am Dec 12, 2011 8:24am
Quoting alvseek
Ok, That's a good example for market sentiment through correlation with stock.

When you see the London stock, it's all down, but on the other hand the US stock is also down.

It's both bad news. How we decide the sentiment then? neutral?

of course if we'll see that the EURO at disadvantage because the debt crisis. The sentiment is going for USD. I know actually it's not that simple to determine. it's just a rough anlysis....
Here's another example of 'risk on / risk appetite / us dollar bearish' when us data came out positive on last Friday..

http://www.forexfactory.com/showthre...65#post5211465
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