FOREX MARKET SENTIMENT

How’s Mr. Market Feeling?

Most time, FOREX traders will have an opinion about the market.
“this a bear market, everything is going to hell!”
“Things are looking too bright. I’m pretty bullish on the markets right now.”

Almost all traders will have their own personal explanation as to why the market is moving a certain way.
In trading time, traders express this view in whatever trade he takes. But sometimes, no matter how convinced a trader is that the markets will move in a particular direction, and no matter how pretty all the trend lines line up, the trader may still end up losing.
Most FOREX trader must realize that the overall market is a combination of all the views, ideas and opinions of all the participants in the market. That’s right… EVERYONE.
This comprises the feeling that market participants have is what we call market sentiment.
this is the dominating emotion or idea that the majority of the market feels best explains the current direction of the market.

How to Develop a Market Sentiment-Based Approach

If you are a FOREX trader, your job is to gauge what the market is feeling. Are the indicators pointing towards bullish conditions? Are traders bearish on the economy? We can’t tell the market what we think it should do. But what we can do is react in response to what is happening in the markets.
Remember that using the market sentiment approach doesn’t give a precise entry and exit for each trade. But don’t despair! Having a sentiment-based approach can help you decide whether you should go with the flow or not. Of course, you can always combine market sentiment analysis with technical and fundamental analysis to come up with better trade ideas.
In stocks and options, traders can look at volume traded as an indicator of sentiment. If a stock price has been rising, but volume is declining, it may signal that the market is overbought. Or if a declining stock suddenly reversed on high volume, it means the market sentiment may have changed from bearish to bullish.

It is a matter of sorrow that, the FOREX Market doesn’t have a centralized market since it has been traded over-the-counter. This indicates the difficulty of the measurement of the volume of each currency traded.

GASP!
OH NOOOO!!!!
Without any tools to measure volume, how can a FOREX trader measure market sentiment?!

This is where the Commitment of Traders report comes in!