Market sentiment, every trader always has an opinion about the market.
“It’s a small market! You are on the rise!”
Each trader will have their own personal explanation of why the market moved in that direction.
When operating, traders express their opinions in their negotiations. But sometimes, no matter how convincing is an information or a feeling about the price, but the trader will keep your idea, and you will lose.
A trader has to realize that the global market is a combination of all the opinions and ideas of all market participants. That’s right … ALL.
This combination of thoughts and ideas on the market is called market sentiment.
It is the dominant thought or idea that most of the market feel and explains the current market direction.
How to develop a sense-based approach?
As a trader, your job is to assess what you are feeling about the market. Indicators point to high conditions? There are many traders selling? We cannot tell the market what we think we should do. But what we can do is to react in response to what is happening in the market.
Note that the use of market sentiment does not give an input and an output needs for each operation. But do not despair! Have a feeling-based approach can help you decide whether to go with the flow or not. Of course, you can always combine market sentiment analysis with technical analysis and fundamental analysis to arrive at the best trading ideas.
In shares and options, traders can look at the trading volume as a sentiment indicator. If the stock price has increased, but the volume is decreasing, it may be a sign that the market is overbought. Or action in sudden decline reverses at high volume, means the market sentiment may have changed from low to high.
Unfortunately (for the situation), the forex market is not centralized. This means that the volume of each traded currency cannot be easily measured.
Oh Noooo!
Without the tools to measure the volume, how can a trader measure market sentiment?
That’s where the Commitment of Traders report (COT)!
Soon we’ll talk about it, be awaiting posting…