How to Use Sentiment to Trade Forex

Summary

In this video, Kathy Lean shares essential tips on using market sentiment for Forex trading. She emphasizes the importance of aligning with market sentiment for both day and swing traders. Lean discusses three confirmation indicators: fundamentals, technical structure, and market sentiment. She explains how to gauge risk-on/risk-off, identify strong/weak currencies, and use bond and commodity trader sentiment to inform trades. Lean also provides strategies for trading currency crosses and using early session currency behavior to predict New York session trends.

Takeaways

• 📈 **Market Sentiment Importance**: Kathy emphasizes that market sentiment is crucial for both day traders and swing traders in forex trading.
• 📉 **Sentiment and Economic Data**: Weak economic data might be overlooked in a bullish market but can significantly impact a bearish market.
• 🏦 **Sentiment and Market Reaction**: Negative sentiment can lead to rapid sell-offs, while positive sentiment results in slower, more orderly rallies.
• 📊 **Confirmation Indicators**: Kathy uses three indicators for every trade: fundamentals, technical structure, and market sentiment.
• 🌐 **Trading Times**: She trades twice daily, at the early New York open and shortly after the Asia open.
• 📊 **Sentiment Analysis**: Kathy assesses market sentiment through risk on/risk off, currency strength/weakness, and bond and commodity trader feelings.
• 📈 **Risk On/Risk Off Indicators**: Stock futures and the VIX are used to measure risk appetite.
• 💹 **Currency Strength**: Percentage change is a key metric for identifying strong versus weak currencies.
• 🌎 **Cross Currency Plays**: Kathy finds opportunities in currency crosses, especially when certain currencies show significant movement relative to others.
• 💵 **Safe Haven Currencies**: During risk-off periods, she looks to buy safe haven currencies like the yen, Swiss franc, and sometimes the US dollar.
• 📚 **Learning Resources**: Interested traders can visit bk4x.com to learn more about Kathy's trading approach.

Q & A

What is the significance of sentiment in forex trading according to Kathy Lien?

Sentiment is crucial in forex trading as it reflects how people feel and determines the market's direction, especially for day traders. It's also important for swing traders because economic data can have varying impacts depending on the market's mood.

Why do investors react differently to economic data in a rising versus a falling market?

In a rising market, weak economic data may be ignored, but in a falling market, the same data can have a greater impact, causing investors to react more quickly and lead to larger sell-offs.

What are the three confirmation indicators Kathy Lien looks for in every trade?

The three confirmation indicators Kathy Lien looks for are fundamentals, technical structure, and market sentiment.

How does Kathy Lien measure risk on and risk off sentiment?

Kathy Lien measures risk on and risk off sentiment by looking at stock futures and the VIX.

What does Kathy Lien consider when determining if a currency is strong or weak?

Kathy Lien determines the strength or weakness of a currency by looking at the percentage change.

How does Kathy Lien use the sentiment of bond and commodity traders to inform her forex trades?

Kathy Lien uses the sentiment of bond and commodity traders as leading indicators for currency movements, especially before the New York open.

What is the significance of currency crosses in Kathy Lien's trading strategy?

Currency crosses are significant in Kathy Lien's strategy because they can offer good opportunities, especially when certain currencies don't move much and others do.

How does Kathy Lien use the performance of the Japanese Yen and Swiss Franc pairs to make trading decisions?

If stock futures are down or the VIX is high, Kathy Lien looks to buy safe haven currencies like the Yen, Swiss Franc, and US Dollar. Conversely, if futures are up, she looks to sell these currencies.

What is Kathy Lien's approach to trading during the New York session?

During the New York session, Kathy Lien looks at how currencies are trading before the open and expects a continuation in the first few hours of trade.

How does Kathy Lien use treasury yields and stock futures to predict currency movements?

If treasury yields are up sharply and a currency like the Euro is holding strong against the US Dollar, and there are no other supporting factors, Kathy Lien will bet on a decline in that currency pair.

What resources does Kathy Lien offer for those interested in learning more about her trading strategies?

For those interested in learning more about Kathy Lien's trading strategies, she invites them to visit her website, bk4x.com.