Utilizing Fundamental and Sentiment based trading strategies in the Forex market is not typically how retail traders start out their trading career. However, many retail traders who do discover these types of strategies will tell you that this is when they had their "Breakthrough" from being an "inconsistent breakeven trader" to becoming a "consistently profitable trader." We developed this Wiki with the hope that more of our fellow retail traders will have their "Breakthrough".

This Wiki is for informational purposes only. Any financial gain or loss from utilizing this information is at the discretion of the person using it. We are not responsible for any outcome you have from using this information.

Before diving into this Wiki, it is important that you have a good grasp of Fundamental Analysis, Sentiment Analysis and Central banks because many of the strategies and ideas presented here assume that you are aware of these concepts because they work together. Please refer to those very important Wikis if you have not already.

This Wiki is a part of our Essential Forex Trading Guide. Be sure to check that out HERE.

Fundamental and Sentiment Trading Strategies

Let’s now have a look at some examples of strategies that fundamental and sentiment traders use to trade the markets. Specifically, we will show you how you can get to grips with these strategies, learn how to apply them and figure out the ones that fit your personality best.

As with the entire principle behind all our Wikis, our goal is not to spoon-feed you a method that will work 10% of the time that you can blindly trade. This is because as much as that would be lovely that is not how the markets work. What will make you a skilled trader is knowing when to apply a certain strategy and when to stay out of the market. Being in or out of the market should be based on the prevailing sentiment and market conditions which can only be developed through practice and experience trading the markets in real-time.

It’s very important to set your expectations correctly because your trading skills will improve over time with dedicated practice. You should not expect to read this Wiki and be managing millions a few weeks later. It simply does not work like this because your skills will develop over months and years rather than days and weeks... Sorry, but it's the truth. This is no different than any other profession that requires advanced skills. However, by learning successful strategies that are proven you will shorten the learning curve substantially and reduce your development to just the time it takes to practice what you have learned in live market situations.

It’s important to understand that your strategy is not the major thing that will make your trading business a success or failure. The absolute best way for you to learn the process of finding trades and identifying the best currencies will be trading the current session by following along with the news feeds and information sources we have discussed in previous Wikis such as the Trading Tools Wiki. If it was as easy as blindly following a mechanical strategy then 95% of retail traders would be profitable instead of the opposite reality that 95% of retail traders lose money.

Note: All strategies are employed only after the analysis phase is complete. Don’t think that because you have a system you can cut out any of the 4 phases of the trading routine because they are relevant no matter how you execute your trades or what you base your trades on.

How to Trade Risk Events

Trading Risk Events can be a very profitable form of trading but you need to know how to do it correctly. In the following Wiki, we are going to explore How to Trade Risk Events including:

You can access the main Wiki on How to Trade Risk Events HERE.

How to Trade with Central Banks

Understanding Central banks and how they conduct themselves in the Forex market is one of the most important concepts that a Forex trader needs to know about for effective trading. In this Wiki, we will explore How to Trade with Central Banks Including:

How to Trade with Central Banks How to Trade Central Bank Statements

You can access the main Wiki on How to Trade with Central Banks HERE.

How to Trade Upcoming Economic Figures

Trading the calendar can be very profitable and the key is utilizing and understanding the information and the expectations available well ahead of the figure or event being released.

When deciding whether or not to trade an economic figure, traders need a deep understanding of the ongoing fundamentals, the current sentiment, and what the market is expecting from the figure.

For example, if the fundamentals are extremely bullish for the currency and the figure is expected to come out worse than the previous one, this would generally be a trade to avoid, because there is a contradiction between the fundamentals and the news event.

What we want to see is the figure to have expectations that are in line with the fundamentals. We want the figure to be better than the previous one if the fundamentals are bullish. In this situation, there is a good chance it will happen and the market will look for excuses to keep buying the currency in line with the buying that has already taken place.

If the figure doesn’t meet expectations it will likely pull back. The fundamentals will still remain intact because one bad figure in a long-standing series of positive figures doesn’t change the long-term outlook for that currency. The counter-trend move will most likely be temporary and the price will soon recover, likely sending the trade into profit anyway. This is the kind of situation that gives us a nice pullback to get in on and make some pips. This will be the case unless the deviation was so large that we have no choice but to reevaluate the fundamentals. This works in the same fashion for weak currencies. We would simply look to sell or go short instead.

Positioning yourself directly ahead of these events is more risky, but as long as you only trade in line with the fundamentals, drawdowns will likely be temporary. Waiting for the figure to pullback is another way to get in this trade but can be trickier and requires a higher level of skill and patience. Sometimes the price doesn’t come back if the deviation on the figure is big enough to force market participants to rethink their game plan.

How to Trade the Previous Session

The previous session almost always will have an impact on the current trading session. For this reason, it is useful to know how the previous session will impact the current session and how you can go about trading it. This is what the following Wiki will focus on.

You can access the main Wiki for How to Trade the Previous Session HERE.

Trading Surprise Data and News

In the following Wiki, we will explore Trading Surprise Data and News and how you can apply this concept to your own trading should some surprise data or news occur.

You can access the main Wiki for Trading Surprise Data and News HERE.

Trading with the News Feed

News Feeds can provide many trading opportunities if traders know how to capitalize on them properly. In this Wiki, we will cover how to trade with the news feed so you can understand how to add this potentially profitable strategy to your trading toolkit.

You can access the main Wiki for Trading with the News Feed HERE.

Trading Fundamental Pullbacks

Trading Fundamental Pullbacks is a simple strategy that involves patience to wait for the medium term sentiment to bring prices back to a place where it makes sense for large investors to see a bargain and want to get back in or add to an existing position. In the following Wiki, we will explore:

You can access the main Wiki for Trading Fundamental Pullbacks HERE.

Positioning Yourself with Medium Term Sentiment

Positioning yourself with medium-term sentiment is basically using any reason that we could have to hold a position over a period of one to a few weeks. A classic example of this is when we have an upcoming event that the market is hotly debating and really excited about.

If we imagine that there has been an article written by a respected FED watcher that indicates that the FED may be about to cut interest rates at their next meeting and the reason he has given makes sense and matches up with the recent data pretty well. If the market has taken this seriously it will very quickly appear as a headline in most of the major news feeds and will gain traction as a market moving story.

In cases like this what will tend to happen is that the currency will move in line with what the FED watcher said right up until the next meeting as outlined in the article. The caveat is that the market must believe this information and the more traction the story gets in the news the more likely that the market is to trade it.

This is just a simple example but there are many other things that can sway short and medium-term sentiment in the Forex market. This can be anything from a global financial crisis, a military conflict between major nations causing safe haven flows, to something like a set of data points causing economists to downgrade their assessment of an economy and calling for the central bank to act. The point is that we have some very solid reasons that the rest of the market is also paying attention to.

Remember, in order for us to make money on our trades we need the price to move in our direction after we have entered and this requires the rest of the markets to be on board with that trade. We don’t want to be the only person looking at a piece of information and doing so will not give us an edge. We need the large players to be in the same trade so that we can take advantage of them pushing price in our direction.

A good way to get trade ideas for medium-term sentiment is following the news feeds and looking out for trade alerts from major investment banks, brokers, or analysts because they almost always trade medium term sentiment. This type of trading allows plenty of time for analysis and trade entry but does require larger stop losses than for day trading which could potentially be 100% or greater of the average daily range for the pair. At the same time, it can be a much less stressful way of trading that stops you from getting sucked into the intraday noise associated with scalping or short term trading.

Trading medium term moves requires a lot of discipline because if you are going to be sitting at your desk anyways then this has the potential of getting in the way of you objectively monitoring the overall picture and could potentially impact your performance. It’s worth thinking this through before trying to integrate medium term sentiment into your regular trading.

As you have probably guessed, this type of strategy does not require too much technical analysis for your entries, stops, and targets as these can all be based on bigger picture items that we will look at next.

Carry Trading

Carry Trading is a time-tested strategy that has been used by large institutions for decades. In this Wiki, we will take a look at what Carry trading is and how you can apply this to your own trading efforts.

You can access the main with on Carry Trading HERE.

Trading Strategy Summary

Before you place any trade you need to have these questions answered and fully understood.

What is the cause of the move?

Use the tools to determine what caused the move (Bloomberg, Newsquawk, ForexFacorty, etc.). The real time news feed is usually the best for short term trading.

What are the Fundamentals?

How does the current move match or line up with the fundamentals for that currency?
This helps to determine if the move is in line with the fundamentals or if there is a short term counter trend sentiment trade that may allow us to get in at a better price.

What is the Fair Value of the currency?

Determine the last extreme high or low that happened while the current fundamentals have been in play.
The fair value is the previous extreme high ( uptrend) or low ( down trend) as long as the fundamentals have not changed.

What is a good entry price?

You compare where the current price is to where the fair value price is. If there is a large enough difference between the prices then it could be a good potential entry point.
You can use the trading tools combined with trade setups with the technical strategies as well.

What is the current sentiment?

After you have answered all the questions above it will be easy to determine what the short term sentiment is and whether it is in line with the fundamentals or not.

Keys to Successfully Executing Trading Strategies

Conviction:

This is the key to successful trading...Period! Without conviction in your trading it will be virtually impossible for you to successfully executing your trading strategies. Please take the time to read our Wiki about Conviction in your Trading HERE.

Knowledge:

Always increase your understanding of the markets because knowledge leads to confidence which leads to conviction.

Fundamentals and Sentiment:

Focusing on these will lead you to the knowledge of what actually drives price movements in Forex.

Tune In:

It’s not enough to just scan the news now and then. You must be constantly focussed on what is moving price and how the fundamentals and sentiment are playing out every day.

Do Not Overcomplicate Trading:

Trading is a simple process that you get better at over time with practice and experience.

How to Tune Back into Trading

As traders, our job is to constantly be tuned into the markets and understand what is going on and how to make a profit from it every single day. This is a simple case of remaining within the flow of information, but this process can become very tiring and mentally exhausting over time. Taking time to remove your mind from this flow allows relaxation and recovery which can re-energize you for the months ahead.

Coming back from a break you should be eager to return to your desk and get back into that flow of information which allows you to earn your pips effectively. This section is designed to explain exactly how to tune back into the market so that you are fully prepared for trading and to ensure that you are not missing anything that may have changed during your time off.

How exactly do you tune back into the markets after time away from trading?

Research:

The key is to research and read all of your preferred news sources with the goal of making sure you fully understand what has been going on and what the current tone of the market is. To do this you follow a very simple plan which is laid out in this section:

When returning to your desk you should load up your saved bookmarks of financial news sites and spend plenty of time reading through the posted material. So the first step is to open up your news sources and start reading.

The best free sites are below for your reference and it is strongly recommend that you bookmark each one for future reference. There are also premium sites that you can use that are good which include Newsquawk, MNI, and Reuters Eikon.

These are the sites that you should read every day as part of your normal trading routine:

What are the exact steps you should take when trying to catch up with what has been going on?

Step 1:

The first step is to read the main feeds of each site for all of the highlights that stand out. For example, all of these sites offer a fantastic ‘front page’ where you can check out all of the recent activity and news that is currently impacting the markets.

One of the best parts is that they also offer analysis and opinions about each event so that you can start to build a picture in your mind of what seems to be going on across the market rather than trying to figure out if one article is more important than another. We are looking for a general theme that ‘everyone’ seems to be talking about.

Step 2:

Once you have read through the headlines you will then click and read each article in full that stands out so that you can get a real flavour of what is being said and how it has been moving the markets. This allows you to determine what is important and what is to be ignored. This might take a day or two to tune your brain back into the market but that is completely fine and it will be well worth your time.

Step 3:

You will now have several currencies that stand out to you and that you can focus on heading into your first day back at trading. The final step is to make sure that you read any new articles or news points that are released between now and your first trade to make sure that the themes are intact and that you are tuned in correctly.

If you have traders around you that trade in the same way it would be good to chat them up to see what the main things that they have been focussing on while you were away from trading.

Conclusion:

As you can see the process of tuning back into the markets is relatively simple and although you could spend significant amounts of money on premium feed there is a lot of information out there for free. The only thing that the premium feeds do is deliver the information faster which is not necessary when you are tuning back into the markets.

By replicating this process you will be fully prepared and ready to start making some pips.

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