Forex Market Sentiment Analysis is looking at what the majority traders think of the market direction.
Before taking a position, every trader is always with an opinion about the market.
The Forex market has far millions of traders, and they all have their own personal opinions and thought of the market direction.
However, when you get to the Forex market, your personal opinion may not matter at all if its against the majority traders.
By human nature the majority will always win. For instance, when the crowd is buying, the majority will also buy and the same is true if the crowd is selling.
What is forex market sentiment analysis
Forex market sentiment analysis is looking at what the majority traders think of the market direction.
Of course the market trend is always clear. It either moves up, down or sideways.
However, you need that conviction that if the market trend is pointing down, it’s really bearish or just a correction in the bulls market. The same is true if the market trend points up.
Traders always have different reasons why they say it’s either a bullish market or bearish. Its because of their different perceptions and feelings towards the market.
May be you are the kind who first studies price action on different time frames to base your judgment. Or else look at the momentum changes.
That’s your point of view. I also have my own view towards the market and so does the other traders.
For example, when you sell/short, that’s how you feel towards the market. If i long/buy, that’s my opinion. But if we both long or short,then we have the same opinion towards the market.
This simply means that It is the changing perceptions and feelings of different traders in the market that run the market. Not the indicators or chart patterns or the candlesticks.
All these charts and patterns are run by the emotions and feelings of people in the market.
All in all, market sentiment is defined by the feelings, emotions and perception of all market participants and what they think about the market.
However it doesn’t necessarily mean that what you feel is always correct all the time.
No matter how confident you are about your feelings, the market can still go against you and take a different direction from your opinion.
That’s sad! Yes but it’s true.
How to trade with market sentiment
First, as a Forex trader you should always bear this in mind. Your personal opinion only cannot make a significant influence in the market of billion participants.
Before you get run down by your own feelings and emotions, you need to know what other traders think.
Are they bulls or bears? Which of the two is in control.
Then go with that.
We can’t tell the market what we think it should do. But what we should do, is react in response to what is happening in the markets.
Our feelings and emotions enable the price to rise or fall in the market and the dominating emotions of the majority traders determine the current direction.
What’s important is to know the current market situation and see how to work along with it.
If the majority traders are buying,the trend is up, do the same. Similarly if the majority traders are selling, the trend is down, it means you should also sell.
Let’s take a look at an example and see how to use market sentiment to enhance your trading.
From the above chart, you can easily tell when price is moving up and when it is moving down.
Market sentiment tells you the direction of the major trend but does’t show when to buy or sell.
In this case, you need the help of both the technical analysis and fundamental analysis to get entry trade signals.
What you should know is that how you interpret a chart is not the same way I do or someone else in the market.
So as you try to follow your intuition about the market relate it with the basics of technical analysis.
Remember, individual opinion does not matter in the market.
It’s the majority opinion that matters. If the trend is on the downside, look for sell signals. Or else buy if the market shows the uptrend direction.
Trade what you see, NOT what you think!
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