In your analysis, you must decide if the market has bullish or bearish sediment.
Then you have to decide how you want to incorporate your perception of market sentiment into your trading strategy.
If you choose to simply ignore market sentiment, that’s your choice. But hey, we’re telling you now, it’s your loss!
We often used sentiment analysis as a contrarian indicator.
There are a couple of ideas why this is.
One idea behind this is if EVERYONE (or almost everyone) shares the SAME sentiment.
Then it’s time to go hipster and trade against the popular sentiment.
For example, if everyone and their mamas are bullish EUR/USD, then it might be time to go short.
Why? Unfortunately, you’ll have to go further down the School to find out! Ha!
Another idea is that most retail forex traders (unfortunately) suck.
Depending on where you find statistics, between 70-80% of retail traders lose money.
So if you know that these unprofitable traders who are usually wrong are all currently long EUR/USD….well, then.
It might be a good idea to do the opposite of what they do!
Being able to gauge market sentiment aka sentiment analysis can be an important tool in your toolbox.
Later on in school, we’ll teach you how to analyze market sentiment and use it to your advantage, like Jedi mind tricks.
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