As you know I trade fundamentals, which is what I encourage my students to do; follow the news, interpret the news and trade the currencies in line with the trends in which they are moving.
However one of the questions we’ve had a few times is do I ever trade against the fundamentals, i.e. if the fundamentals say a currency is going to go up, obviously it never just rallies and will pull back and sells off, do I then look to take advantage of these sell off’s and trade against the fundamentals.
The answer is yes, based off of sentiment which can be described as the mood of the market, so if the mood of the market changes temporarily and I feel that it will last a few days I’ll get in the trade and ride it down a few pips and try and take some profits out.
The difference however to how I typically trade is that I won’t hold a trade against the fundamentals because if it does go against me it’s more than likely going to keep going and I’ll lose allot of money.
Therefore I’ll place a tight stop loss in when I’m trading against the fundamentals where as when I’m trading with the fundamentals I’ll be a bit more loose have bigger stop losses or no stops at all sometimes as I have much more confidence in the position.
So the only difference is that level of confidence that I have, when trading against the fundamentals my level of confidence will always be that little bit lower so I’ll always have a close stop so that if I have got it wrong I can limit my losses just in case I have got it wrong.