Earlier, we said that price action should theoretically reflect all available market information.
Unfortunately for us forex traders, not that simple.
The forex markets do not simply reflect all the information out there because traders will all just act the same way.
Of course, that isn’t how things work.
Therefore sentiment analysis is important.
What’s Your Opinion
Each trader has his or her own opinion of why the market is acting the way it does and whether to trade in the same direction as the market or against it.
The market is just like Facebook.
It’s a complex network made up of individuals who want to spam our news feeds.
Kidding aside, the market basically represents what all traders feel about the market.
Each trader’s thoughts and opinions, which are expressed through whatever position they take, help form the overall sentiment of the market regardless of what information is out there.
The problem is that as retail traders, no matter how strongly you feel about a certain trade, you can’t move the forex markets in your favor.
Even if you truly believe that the dollar is going to go up, but everyone else is bearish on it, there’s nothing much you can do about it (unless you’re one of the GSs – George Soros or Goldman Sachs!).
As a trader, take all this into consideration. You need to perform sentiment analysis.
It’s up to you to gauge how the market is feeling, whether it is bullish or bearish.