Day Trading With Fundamental Drivers Or Sentiment

The approach to day trading is different to swing trading but it’s more intertwined than most realise. This video explores whether major fundamental drivers are still useful for day traders or if it is better to focus on sentiment headlines.
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An experienced currency analyst that specialises in short term sentiment and news driven trading.
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Latest posts by Arno Venter (see all)

We have a question from Alexandre who asks what our opinion is on the impact of the key fundamental drivers for short term intraday traders. Are the major fundamental drivers still useful for day traders or is it better to focus on sentiment headlines.

Thanks for the great question Alexandre. It’s an answer that has a couple of caveats. Fundamentals focus on where the asset is expected to go in the med-term, while sentiment is mostly focused on the short-term catalysts.

So, it is true that your approach to day trading is different to swing trading. It can be very different in terms of time horizon and sustainability, which can alter the focus, but it’s more intertwined than most realize. For example, even though short-term catalysts provide you with reasons why certain assets are moving higher or lower on a session to session basis, it is important to always keep the bigger picture view in mind.

Now, don’t get me wrong, there is certainly a great deal of focus that needs to be placed on short-term market sentiment, but there are two distinctions when it comes to intraday trading from sentiment. The first one is trading general short-term sentiment which might be driven by a few various factors ranging from risk sentiment or monetary policy or geopolitics or economic data etc.

And the second one is when you are trading specific short-term sentiment shifts which come from very significant headlines hitting the wires when that news is aligned with current major global macro market themes.

So, there is nothing wrong with just focusing on sentiment if you are a day trader, there are certainly lots of sentiment changes throughout most trading weeks which can create short-term moves, many of which we highlight as part of our daily videos.

However, there is definitely something to be said about those times when the fundamentals and the short-term sentiment aligns with each other. Let me put it into context for you. Let’s say you have a fundamental upside bias for the AUD, and imagine that US-China relations took a big turn for the worse when some navy vessels almost engaged in live fire with each other, and it sends markets in a bit of tailspin with a strong risk off mood in the short-term.

From an intraday basis there is nothing wrong with trying to capitalize on that short-term risk off sentiment by selling the AUD, but that’s just one part of the story, because knowing that the AUD actually has a fundamental upside bias in the med-term can help you to drastically improve your results for trades like that if you know that the move will be met with value buyers if the AUD sees any significant sell offs.

Now, imagine for a second that instead of a fundamental upside bias you had a fundamental downside bias for the AUD, and now imagine you had the same breaking news about the US & China, that will allow you to manage that downside bias with a lot more conviction and can allow you to squeeze some additional pips out of that risk off mood because you are also selling in line with the bigger picture view.

So, there is certainly nothing wrong with just focusing on the short-term sentiment and trading that accordingly, but as someone who trades short-term moves all the time, I would feel blind in my trades if I didn’t have a bigger-picture view of a particular asset to help me to better manage those short-term positions, both from a risk management as well as a trade management point of view.

So, I hope that helps with your question Alexandre, and if there’s any other questions don’t hesitate to let us know.

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