Marker Sentiment Analysis: Everyone knows that trading in the Forex market is not easy. Sometimes every technical indicator points to a certain direction but the market moves in the other direction. Other times the fundamental outlook of an economy is very bearish for the currency of that country, yet it keeps moving higher against other currencies.
The uptrend in EUR/USD from mid-2012 until May this year is a good example of this. The economy of the Euro Zone as a whole was in stagnation with many countries still in recession, the political scene was unstable and the inflation was falling, which would be bearish for the Euro. Across the Atlantic the US economy was performing pretty well, but this pair kept marching higher to 1.40.
Marker Sentiment Analysis in Forex Trading
One of the most important thing is the Market sentiment. You should learn to read/feel it if you want to trade forex and all other financial markets. Sometimes it´s easy to read it because you just look at the main trend of a certain pair in the charts, like the uptrend in EUR/USD from 2012 to 2014. But it´s not always so easy, the same as in the second example and you might lose all the funds in your account.
Do you know what market sentiment is? Market sentiment is the momentum of the market. All traders, small or big, have an opinion when trading in the Forex market. Some might be bullish and some might be bearish. The market sentiment is all their opinions combined, even yours if you are trading.
Marker Sentiment Analysis Factors
Every now and then we hear that the most important indicator is the trend. The trend shows the market sentiment. But trends sometimes can be tricky to trade. You might be a daily trader trading the 15 minute and one hour charts and the trend there might point to a direction, so you place a trade in the same direction. Hours later you see that the trend has changed and you are losing money. How did the trend change so fast? Well the trend, the bigger trend in the 4 hour or daily chart might have been in the opposite direction and the trend you were looking at was just a correction of the bigger trend, or a trend within a trend as they are called. So before placing an order based on a smaller timeframe chart you have to look at the bigger time frame charts. This way you can see how the market feels and which side it really is positioned on.
There is another way to understand the market sentiment is to concentrate at one pair at a time. This way you´ll get the feeling of this pair. There are successful traders that trade based only on their instinct of the price action. You have to observe how fast a certain pair moves in both directions.
If the up moves are faster than the down moves, it shows that the traders are willing to buy first and ask questions later. This means that the overall market sentiment is bullish. You can also watch how a pair reacts to economic news related with both currencies. For example, if we´ve had good economic news from the UK but the GBP/USD bounces based on the good economic data are getting smaller every time, it means that the market sentiment for this pair is turning bearish.
It´s even more bearish if good economic news in the recent past hasn´t been able to form an uptrend. The COT Report When you trade stocks you can look at the volume that is being traded because the stock market is centralized on the stock exchange floors, but this doesn´t apply to Forex.
International events are very important in setting the market mood. Some of them might happen on the other side of the globe and might seem like they´re not related to a certain currency, but in this global world we live in everything is connected and affects the markets, especially the financial markets. The nuclear plant disaster in Japan a few years ago had a big impact on all major currencies across the world.
At first glance the Swiss Franc has no relation to what happens in Japan, but it is a safe haven currency so it surged higher amid fears of another global crisis. Another very recent example is the crisis in Russia a few weeks ago. EUR/USD doesn´t have any direct connection to Russia but the flow of cash from Russia into the Euro Zone helped this pair move about 300 pips higher.
The Bottom Line: Marker Sentiment Analysis
Market sentiment is a very important aspect of trading in the Forex market and all other financial markets. All these factors set the mood of the traders and decide what the market sentiment will be. It looks difficult but if you are serious about becoming a trader you have to make the effort and practice a lot, because getting to feel the market in your veins comes only with experience.
Please note that: because of the differences in trading conditions, all the forex strategies can not be applied to all broker platforms. So, Choosing Forex broker is a vital task. We would like to recommend you HYCM Broker. This broker has all the positive trading conditions necessary for any forex strategy to work. Read HYCM Broker Review to learn more.
Forex Trading Strategies
|Lesson 1||profitable Forex trading strategies|
|Lesson 2||Most popular trading strategies|
|Lesson 3||Forex Scalping Strategy|
|Lesson 4||Forex Trading Hedging Strategy|
|Lesson 5||Forex Trading Trendline Analysis|
|Lesson 6||Forex Trading Breakout Strategy|
|Lesson 7||Pivot Point Reversal Strategy|
|Lesson 8||Pivot Point Break Out Strategy|
|Lesson 9||News Trading Strategies|
|Lesson 10||Marker Sentiment Analysis|
|Lesson 11||Pivot Points Trading Strategy|