Trading Market Sentiment

J

jsyyap

Trading forex: GBP/USD, EUR/JPY and EUR/USD. I'm trading from Auckland New Zealand, which is GMT+12.

Indicator used is 50 SMA for daily, 1-hour and 5-minute chart.

First I look at day chart to determine the day's market sentiment. If bullish sentiment for the day, i only trade on the long side when price action is above the 50sma. If market sentiment for the day is bearish, i trade only from the short side when price action is below 50-sma. Trading is done on the 5-minute chart.

For entry, I look for double tops/bottoms or head and shoulder patterns. Inital stop set at one pip break on the previous candle hi/low 5-minute chart. Trailing stop 10pips.

Attached is the chart for today.
 

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market sentiment - The market sentiment is the intuitive feeling of the investment community regarding the expected movement of the stock market. For example, if market sentiment is bullish, then most investors expect an upward move in the stock market.
There are various technical and statistical methods used to measure market sentiment such as advancing versus declining stocks, new highs versus new lows...
http://en.wikipedia.org/wiki/Market_sentiment

IMO, if day's price is trading above a currency pair's opening price (GMT+7), then market sentiment is bullish. If price is trading below opening price, then market sentiment is bearish.

opened two trades on cable, one after the other, got stopped out each time.
 

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Ahh I see.

I measure sentiment in a slightly different way, as I use it as a contrary indicator. Basically, I create a composite score of the COT commercials (smart money) and the FXCM/FXtrade long/short ratios (dumb money) and use this score as a filter to either trade or fade breakouts.

I am currently riding a short trend in the USD/CHF, a long trend in the EUR/GBP and a fade in the USD/CAD (that has been a loser so far and may trigger my stop today).

Good luck with your system! I would love to see more of your trades posted here; and experiment with the sentiment data I described above, you may be pleasently suprised when you not only find a nice trend but can position yourself opposite to the crowd as well!
 
Basically, I create a composite score of the COT commercials (smart money) and the FXCM/FXtrade long/short ratios (dumb money) and use this score as a filter to either trade or fade breakouts.

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Sound interesting.
What does that look like - chart-wise?
Timeframes you use?

Charly
 
Quote from Charly:

Basically, I create a composite score of the COT commercials (smart money) and the FXCM/FXtrade long/short ratios (dumb money) and use this score as a filter to either trade or fade breakouts.

~~~~~~~~~~~~~~~~~~~~~

Sound interesting.
What does that look like - chart-wise?
Timeframes you use?

Charly
More...

A currency pair has five sentiment modes in my model ranging from very positive to very negative with edgeless in the middle (and roughly 2/3s of all pairs are edgeless at any given time). It takes a long/short ratio of at least 1.5 (which would be at least 60% long/short to register a score shift. Between this 60/40 band I consider the reading noise). I modify the 'crowd' score by + or - one shift depending on what the commericals are doing.

I trade in the intermediate term timeframe using the original turtle system for breakouts and LBR's turtle soup pattern for the fades. I am backtesting additional trend following systems but a trend is a trend in my view. My exits are slightly modified based on the currency sentiment score (for instance, I may take a 10 and not 20 day low on a 55 day breakout as an exit if my long trade sentiment profile has shifted from positive to negative).

You might also be interested to know FXCM has a currency fund open to public investment which uses sentiment data to time trades. The fund is doing pretty darn well, and they are raising the minimum required investment.
 
Quote from brasiltrader:

A currency pair has five sentiment modes in my model ranging from very positive to very negative with edgeless in the middle (and roughly 2/3s of all pairs are edgeless at any given time). It takes a long/short ratio of at least 1.5 (which would be at least 60% long/short to register a score shift. Between this 60/40 band I consider the reading noise). I modify the 'crowd' score by + or - one shift depending on what the commericals are doing.

I trade in the intermediate term timeframe using the original turtle system for breakouts and LBR's turtle soup pattern for the fades. I am backtesting additional trend followingsystems but a trend is a trend in my view. My exits are slightly modified based on the currency sentiment score (for instance, I may take a 10 and not 20 day low on a 55 day breakout as an exit if my long trade sentiment profile has shifted from positive to negative).

You might also be interested to know FXCM has a currency fund open to public investment which uses sentiment data to time trades. The fund is doing pretty darn well, and they are raising the minimum required investment.
More...
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Thank you BT -

very interesting, too - though not easy
to understand since I still don't really understrand how you create the score
and what it has to look like.

LBR turtle soup - who/what is that?
I never really bothered about the turtles so far however, that may have been wrong.

Thanks.
Charly
 
I'll give you some examples later to give you an idea of how the sentiment score works, but the most important idea is you want to be trading with the commercials and against the FXCM/FXtrade retail traders.

LBR is Linda Bradford Raschke, turtle soup is a method of fading breakouts.
 
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