Sentiment Analysis

In another post, it was stated that price action should be supposedly reflect all available market data. Sadly, it is not that simple for us forex traders. The forex markets do not just reveal all of the data out there for the reason that traders will all just act the same way and of course, that is not how things work.

This is the reason why Sentiment Analysis is important.  Every trader has their own outlook on why the market is performing the way it does. The market is just like Facebook,  it’s a difficult network made up of individuals who wants to junk our news feeds.

The market essentially represents what all, feel about the market. Every trader’s opinion and thoughts, that are expressed through any kind of position they take, support from the whole feeling of the market regardless of what facts is out there.

The trouble is that as retail traders, you can’t change the forex markets in your favor, it does not matter how strongly you feel about a definite trade. Even if you really believe that the dollar is going increase, however,  everyone else is bearish on it, there is nothing much you can do about it (unless you’re one of the GSs – George Soros or Goldman Sachs).

Being a trader, you have to take all of this into consideration. You need to carry out sentiment analysis. It’s up to you to measure how the market is reacting, whether it is bullish or bearish, and you choose how you want to combine your perception of market sentiment into your trading strategy. If you select to simply disregard market sentiment, that will be your choice. But to be frank, we are letting you know, it’s your loss!

Being able to estimate market sentiment also known as sentiment analysis can be an essential tool in your toolbox.

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