Learn how sentiment drives the forex markets

Learn how sentiment drives the forex markets

More on understanding risk and sentiment to succeed as a forex trader.

00:10

Introduction to market sentiment and trading approach

00:10

The speaker begins by addressing a question related to trading sentiment, referencing New Zealand as an example. They acknowledge that many traders find this concept confusing but assure that it is straightforward. The speaker mentions using resources like Investing.com and program materials that explain trading sentiment in great detail, emphasizing that this foundational knowledge is covered extensively for learners.

00:49

Interrelation of markets and money flow concept

00:49

The speaker discusses trading markets from a multi-timeframe perspective, emphasizing that technical analysis alone is insufficient. They highlight that all capital markets—forex, bonds, commodities, equities—are interconnected and driven by money flow, which is fundamentally about managing risk. Investors aim to maximize returns while protecting their capital, especially during periods of market fear. The continuous movement of money reflects shifting risk appetites, with stocks and shares representing higher-risk assets.

02:05

Risk assets vs safe haven assets explained

02:05

The segment discusses the inherent risks associated with investing in stocks and shares, contrasting them with assets perceived as less risky such as government bonds and safe havens like gold and silver. It explains how market sentiment, influenced by factors like geopolitical events and pandemics, can cause investors to shift money from riskier assets to safer ones. This movement is often reflected in the forex market, which acts as a gateway for these exchanges and highlights the varying risk profiles of different currencies.

03:22

Forex market’s role in reflecting risk sentiment

03:22

The speaker discusses the dual role of the Japanese yen in the forex market. It acts both as a safe haven currency, similar to the US dollar, and as a funding currency used to purchase riskier assets. This concept is explored in detail within a specific program, which the speaker recommends checking out for a deeper understanding.

04:02

Using S&P 500 futures and VIX for sentiment gauge

04:02

The speaker explains how to gauge market sentiment using key indices, particularly the S&P 500 futures, which serve as the primary benchmark for risk appetite in the financial world. When the S&P futures rise strongly, it indicates a risk-on environment, typically leading to gains in indices like the Nasdaq. This risk appetite influences forex markets, where safe-haven currencies like the Swiss franc and Japanese yen tend to weaken as traders move into riskier assets. The VIX index, which moves inversely to the S&P 500 futures, is highlighted as the ultimate measure of market fear.

05:14

The discussion continues emphasizing the importance of monitoring sentiment through the S&P futures and the VIX, noting that when S&P futures rise, the VIX falls, reflecting reduced fear. The speaker advises traders to observe currency movements, bond yields, and commodity prices to understand market tone. Beginners are encouraged to start by tracking the S&P 500 and VIX as simple and effective sentiment gauges, which will eventually complement more complex data like bond yields and commodities as they gain experience.

06:23

Trading strategies by currency pairs and sessions

06:23

The speaker explains the importance of choosing trading opportunities based on indicators and personal knowledge of currency pairs. Traders often specialize in pairs relevant to the session they trade in, such as GBP pairs during the London/Europe session, USD and CAD pairs during the US session, and JPY, NZD, and AUD pairs in the Asia-Pacific session. While opportunities exist across all pairs and timeframes, the focus tends to shift depending on the active trading session.

07:57

The market is described as multi-dimensional, not confined to a single timeframe or asset class. Historically, many retail traders only focused on simple charts and basic strategies like moving average crossovers without considering broader market interconnectedness such as bond yields or the S&P 500. Although this complexity may seem overwhelming to beginners, the speaker encourages breaking down learning into small manageable parts to gradually understand the market’s depth.

09:39

Complexity of forex market and trader adaptation

09:39

The segment explains the strong movement in the New Zealand dollar, highlighting how fundamental news like the Reserve Bank of New Zealand’s interest rate decision influences market sentiment and currency fluctuations. Last week, the New Zealand dollar sold off heavily after the RBNZ’s announcements, affecting trader behavior. This impact carried into the following week, influencing yen pairs due to positive market sentiment, such as a significant rise in the Dow. Traders assess which currency pairs offer the best potential for gains, with the New Zealand yen pair benefiting from New Zealand’s prior oversold position. The discussion emphasizes the importance of understanding both market sentiment and fundamental news even when trading on shorter time frames.

12:01

Impact of fundamental news on currency moves

12:01

The speaker emphasizes the importance of understanding not just currency pairs but the individual currencies themselves, suggesting that focusing on a select few pairs allows traders to anticipate when currency flows will be stronger at different times of the week or month. They reference an example from the previous afternoon using a momentum indicator on a 15-minute timeframe, highlighting significant moves such as the New Zealand dollar strengthening against the yen and Swiss franc. The New Zealand dollar showed particularly strong upward momentum by the afternoon, outperforming other currencies like the pound and the Australian dollar. The speaker notes that from around 11 a.m. until the start of the New York session, the New Zealand dollar moved nearly 100 pips, illustrating the power of tracking these momentum flows with various timeframes.

14:17

Indicators and scanners for momentum and volume

14:17

The discussion focuses on developing tools for quantum users involving indicators. A scanner is introduced that allows users to plug in indicators to detect key levels like volume points of control (VPOC), similar to a radar or heat map on trading platforms like TradeStation. This scanner will help identify indicator-based support and resistance levels across different timeframes.

15:24

The speaker reviews a 30-minute chart of the New Zealand Yen, observing it began moving higher but stalled at a support level of 63.80. The volume point of control is dynamic and highlights congestion phases. While other indices and currency pairs moved higher in the morning, the New Zealand Yen remained sideways until around 11 o’clock, showing little rotation or movement initially.

16:03

Volume and price action analysis in New Zealand yen

16:03

The market saw a move higher in the New Zealand currency pair, characterized by rising prices and volume. This upward momentum paused briefly with a volatility candle, followed by a return to a price range with significant volume beneath the volatility handle. For the remainder of the trading session into the Asia session, the market moved mostly sideways with declining volume.

16:38

The sideways movement with lower volume during the Asia session is explained by fewer traders participating compared to the London and New York sessions. London accounts for 43% of market volume, leading to a surge in activity when it opens. The reduced participation in Asia does not mean a lack of price action, just fewer traders.

17:13

Despite fewer traders in the Asia session, there was significant buying pressure under the volatility candle, which triggered a reversal and then a sideways move. The volume profile (VPoc) acted as strong support. As the European session began, the New Zealand yen pair resumed its upward move, continuing the bullish trend.

17:46

The current market position shows potential for continued gains in yen pairs if the prevailing sentiment holds. However, the strength may shift to other yen pairs beyond the New Zealand yen. The discussion transitions to analyzing key levels for these pairs to assess future movement potential.

18:21

Key support/resistance levels and Camarillo levels

18:21

The speaker explains the use of Camarillo levels, which identify important price or volume-based support and resistance points without manually drawing lines on charts. The discussion focuses on a 10-minute chart where volume and price indicators reveal market behavior.

There is an observed upward volume surge with some volatility candles indicating minor weakness, followed by another upward rush with volatility. The key level to watch is 65.57. Additionally, the speaker mentions using ESI indicators to analyze currency performance, specifically highlighting the New Zealand yen.

20:14

Renko charts and potential short setup on NZD/JPY

20:14

The speaker analyzes the New Zealand currency pair’s recent price movement, noting potential short opportunities on faster timeframes. They emphasize the importance of watching for price breaks outside the volatility candle range, with key levels identified at 65.50 as a resistance and 65.18 as support. To assist in decision-making, a non-time-based Renko chart is introduced, which filters out noise from traditional time charts and highlights potential short setups.

21:18

Discussion continues on market sentiment and the validity of the potential short setup, highlighting the need for confirmation via a color change in the trend monitor and a shift in sentiment indicators. The speaker remains uncertain due to the current volatility candle but suggests exploring other currency pairs with more movement potential, prompting a transition to the Aussie yen for further analysis.

21:54

A brief exchange covers discussing other markets, confirming the availability of Aussie yen and silver for analysis, and transitioning the focus to the New Zealand market.

By Anna Coulling – creator of volume price analysis