Market Sentiment
Understand the forex market. Do you see the market as a big mechanical matrix which is devoid of emotions? How do you view the forex market is very important. Most traders have a love hate relationship with the market thinking that the market is either against them or for them.You can trade forex news.
The truth is that forex market is just the compressed display of emotions. At anyone time the market is emanating the emotions of currency speculators around the world. Develop your own forex trading system.
A market is like a big living organism made up of millions of cells. Each cell carries its own functions and interacts with other cells of the body keeping the living organism alive around the clock.
Knowing what the market thinks and how it thinks is crucial to trading success. A forex market comprises millions of participants acting out their perceptions and emotions.
Ultimately, you as the trader are dealing with other traders out there in the market whether they are big institutional players or an independent individual trader like you and me. You need to know what the other participants are thinking.
What is market sentiment? Market sentiment is simply what the majority of the market participants are perceived to be thinking or feeling about the market. Market sentiment is the most important factor that drives the currency markets.
Market sentiment sums up to the overall dominating emotions of the market participants. Traders tend to act based on what they feel and think of certain currencies. They form their opinions based on emotions regarding their strengths or weaknesses relative to other currencies. It explains the current actions of the market as well as the future course of action.
One thing you should know is that market sentiment is not logical. It is primarily based on trader’s emotions. These emotions are one of the greatest factors in the determination of the currency exchange rate.
Market sentiment is like a fickle lover. It is capable of changing its mind based on new information. This incoming new information can upset the existing emotion. Market sentiment can be bearish, bullish or just plain confused.
If the majority of the market participants want to sell the currency, the market sentiment is deemed to be bearish. If the majority wants to buy that currency, the market sentiment is bullish. When most market participants are unsure of what to do at a particular moment, the sentiments end up being mixed up
If you can understand what the other traders are thinking and why the market is doing what it is doing, you will be in a better position to plan the entry and exit for your trade. Understanding the current market sentiment and exploiting it with an appropriate trading strategy can help maximize your trading profits. In Part II of this article we will discuss what factors influence the market sentiment.
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