What is Sentiment Analysis?

Sentiment analysis is used to evaluate the sentiment of other traders, whether in the general currency market or in a specific currency pair.

Prior, we said that value activity ought to theoretically mirror all accessible market data. Sadly for us forex traders, it is quite difficult.

The forex markets don't just mirror all of the data out there since traders will generally act the same way. Obviously, that is not how things work in the forex world.

That is exactly why sentiment analysis plays a very important role. Every traders out there have their own opinion and understanding on how the market moves, why the market is behaving the way it does and whether to trade the same direction or opposite direction of the market.

The market, its similar to Facebook - it's a mind boggling network comprised of people who eager to spam our news channels.

Jokes aside, the market reflects what every trader - you, Warren Buffet, or Celine from the doughnut shop – thinks and feel of the market.

The overall sentiment of the market are expressed by each traders thought and opinions, through whatever position they take. Regardless of what information, it helps structuring the general feeling of the market paying a little mind to what data is out there.

Regardless of how strong you feel about a particular trade, there‘s no way you can move the markets in your favor. That’s one of the downside of being a retail traders.

Even if the rest of the market is selling and yet you still believe that Us Dollar will go up, theres nothing much you can do about it((unless you're either GS - George Soros or Goldman Sachs!).

As a trader you have to consider all of this. Sentiment analysis is required.

At the end of the day, it‘s entirely up to you to intrepet how the market is feeling, whether it’s bullish or bearish.

Next, youve got to decide how to combine your view of market sentiment and insert in into your trading strategy.

Sentiment analysis is often used as a contrarian indicator. If market sentiment is not your cup of tea and you choose to ignore it, that‘s entirely up to you. But we’re warning you, its definitely your loss!

There are two or three thoughts why this is.

One thought behind this is in the event that EVERYONE (or nearly everybody) shares the SAME opinion, it's an ideal opportunity to go trendy person and trade against the well known sentiment.

For instance, on the off chance that everybody and their mothers are bullish EUR/USD, it very well may be an ideal opportunity to go short.

Why？ Too bad, you'll need to go further down the School to discover! Ha!

Another thought is that most retail forex trader (sadly) suck. Contingent upon where you track down the insights, between 70-80% of retail dealers lose their money on trading Forex.

Assuming that you are aware that all these unprofitable traders are making a wrong decision longing EUR/USD.....well,theeeeeen.

Don‘t you think it’s a good idea to do the oppsite from them？

Having the ability to measure the market sentiment, it can be a significant instrument in your toolbox.

Later on in school, we'll help you how to break down market sentiment and use it for your potential benefit, as Jedi mind stunts.