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The markets change sentiment every week
On a Monday the markets can be feeling good with a positive outlook (known as risk on), only to change to a negative outlook on the Tuesday( known as risk off), and on Wednesday back again to risk on, and then flip to risk off for Thursday and Friday.
This pattern of changeable market outlook is common. At least one or two changes of outlook happen virtually every week. This has been the case since inflation spiked and interest rates rose, and will be the case until we are back to a low inflation, low interest rate environment, which I predict will be in 2026.
So for the next 2 to 3 years at least we are trading a very changeable landscape every day.
The reason the markets change outlook so often is that they are VERY sensitive to economic data and political developments in high interest rate times. This is because most of the ”invested” money in the world comes from hedge funds. Historically hedge funds invest using the 60/40 portfolio rule. This is a term used for an investment strategy that employs 60% of capital in in the stock markets , and 40% in the bond/credit markets.
Both stocks and bonds are very sensitive to current interest rates but also the ”outlook” for future interest rates. So if a piece of economic data comes out that has strong implications for future rates, then the markets will react to it. Similarly politics can also affect the prospect for interest rates, so a geopolitical development can affect the markets. Central banks set interest rates, so a comment from a Central bank board member can move the markets too. In fact there are numerous things that can either on their own, or collectively, affect how the markets view the interest rate outlook, and this can change literally every day of the week.
Inflation is the main issue. Whilst inflation is high, and it looks like it is likely to remain high, then Central Banks will be under pressure to keep rates high until inflation has reduced. However, as of mid 2023 it looks like inflation has peaked and is falling, so Central Banks will potentially be able to reduce rates at some point.
The U.S Central bank(the Federal Reserve…or just Fed) are also responsible for ensuring that unemployment does not get too high, so they have to walk the tightrope of balancing inflation with employment, and this is a VERY difficult task.
All this plays into a complex mechanism of moving parts that make trading any market challenging, and since Forex is a lagging market that moves primarily in response to the bond and stock markets, then we need to understand this complex mechanism, and we need to be cognizant of all the data and news that impacts the way the markets are ”feeling” each day.
That ”feeling” is labelled ”market sentiment”. Positive sentiment is known as ”risk on” and negative sentiment is known as ”risk off’‘.
If the market is particularly ”risk on” one day, then four currencies are tradeable as a LONG against either a short U.S dollar or short Japanese Yen. If the market is particularly ”risk off” another day then we can look to SHORT one of those currencies against either a long U.S dollar or a long Japanese Yen.
This is one example of why we need to know what is happening in geopolitics and economics to be able to trade Forex profitably. There are many more examples I could give of how understanding market dynamics gives strong clues about which currencies are tradeable.
Trading is not easy. It requires knowledge, and this knowledge takes a while to acquire. The good news is that once you acquire it, it only takes about 30 to 45 minutes per day to keep completely on top of the markets, and as you get more experienced you can absorb all the information you need in 15 to 20 minutes per day. If you do your reading you will be able to spot the clear and obvious opportunities that the markets present each week.
All my customers are in that situation. They have all spent at least 12 months reading up on the markets 5 days per week. Consequently they only trade what I call the 2 to 4 ”clear and obvious” Forex trades that show up each week. Knowing which Forex ”moves” are the tradeable ones is a skill, and this is what I teach. By ”moves” I mean the larger shifts in currency strength and/or weakness. Many currency shifts can be large, and can look very tradeable, but they are not. I look for trades that have a logical cause or ”catalyst”. These are the trades that make me money consistently, year in year out. To identify them I need to be completely on top of the markets. I need to know what the market sentiment is each day, and more importantly, WHY it is either good or bad, or just in between without any direction, which is often the case.
I always say to my customers that the most important word in Forex trading is ”WHY?”. It is the question we should be asking ourselves all the time. If we see a strong Australian dollar we must ask ourselves WHY is it strong….what was the catalyst that caused that strength. If we cannot answer the question we should not trade it, because it is likely to be a random move caused by the opening or closing of a large position in the interbank market.
Twice per week I run a 30 to 45 minute trading room live in the markets. I always run them at the two times each week when I think the markets are most likely to move, which tends to be after important U.S economic data such as CPI, employment, Fed decisions, PMI’s etc.
The reason that I run the rooms during or after U.S economic data is that the U.S dollar, being the worlds reserve currency, features in more than half of all money transactions globally, and the U.S is the worlds biggest economy. There is an old saying that when America sneezes the world catches a cold. The U.S dollar pairs are by far the most liquid, and the economic releases in the U.S move the markets way more than any other data.
That said, there are of course many currency moves that do not involve the U.S dollar, and I do trade them. However they are in the minority, so I tend to stick with the U.S releases for the trading rooms as we are more likely to get tradeable moves at these times.
On average I call out a trade in just under half of the trading rooms, and tell my customers not to trade in the other half. So even the big economic releases only offer up an opportunity about a third to a half of the time. As I say often…there are only a few clear and obvious opportunities each week.
The purpose of my trading rooms are twofold:
- To call out a live trade when there is one.
- To give my view of the markets. I explain where the markets are now and have been for the last couple of days, and where I think they will go in the next couple of days. So I try to guide my customers in terms of what I think the markets are telling us to do.
Interestingly, 80% of my customers never attend a live trading room. Most of my customers have been trading room subscribers for well over a year. Some have been with me for 3 to 5 years, and they still don’t attend a live room. The reason for this is that they get value from watching my trading room video recordings which I send out every weekend.
So, if they spend30 minutes to an hour each week watching my videos, they are then on top of the markets. I am a kind of ”short cut” for them. Now, whilst I would rather that all my customers spent 30 minutes every day doing market analysis, like I do, I also recognise that it is not practical for everyone. Hence the trading room recordings serve as a kind of market analysis ”news feed” from me, allowing some of my customers to keep on top of things without that daily commitment.
As I say I trade live when there is an opportunity and I have a band of regular trading room attendees that copy my trades. Sometimes I do not have a live trade recommendation there and then but think that there may be one in the hours after the trading room. If so I tell them, and they take that trade later that day.
So some of my customers are copying one or two trades per week of mine, which is absolute fine by me. However, my goal with my trading rooms, and my Forex video course, is to help traders become independently profitable, without my help.
Some of my favorite emails are those from customers telling me that they are leaving my trading rooms because they are now consistently profitable. I get a warm feeling when that happens, and it is one of the reasons that I keep doing it, year after year.
I occasionally run a FREE trading room. If there is one coming up you can register for it on my home page. As with my regular trading rooms, I record them so you don’t have to attend live. I send the video recording to everyone that registers.
If you are interested in the trading room service and would like to apply to join please head over to my pricing page.