Trading Strategies & Tech
Sentiment Analysis
15 Jan 2013
When discussing technical analysis, we stated that price should, in theory, accurately reflect all the available market information. Unfortunately, it is not always that simple. The reason for this is that traders do not all act in the same way. Every trader has their own opinion or explanation as to why the market is behaving as it is. Therefore, the market is basically a representation of how all the traders participating in the market feel about it. Their individual thoughts and opinions, which are expressed through whatever position they take, helps to form the overall sentiment of the market.
Read More:
Unless you have the power to invest billions in the forex market, the chances are that you will have little or no influence on the movements of currencies. Even if you have strong reason to believe that the euro is going to go up, if the majority of other investors think that it is going to go down, then that is the way it is more likely to go.
Therefore, it is up to you, as an individual trader, to gauge how the market is feeling about a certain currency, and how to incorporate this assessment into your trading strategy. You could, of course, choose to ignore market sentiment entirely, but this should only ever be a conscious decision taken on a case-by-case basis, rather than one based on ignorance.
