Sentiment is a powerful emotion, and one that is a prime factor that is preyed upon by marketing experts. Sentiment analysis is the process of observing how a customer feels pertaining to a transaction. The analysis is performed to review if the experience is positive, negative, or neutral. In trading, it is used to help determine how traders feel about the currency market.
Trend analysis, alone, cannot perform an adequate prediction of the future because of the outside influences that change public interests. For forex traders, knowing what will be strong tomorrow is more than just knowing what was strong yesterday. Not every trader responds similarly. Sentiment analysis helps to determine a trader’s opinion on why a market is behaving in a particular matter, which can help predict how traders will react given certain situations – to move in a particular direction or against it.
The market is not unlike social media – it’s a network of individuals who have a variety of backgrounds and experiences. Some were raised with a familiarity of the market; some are learning as they go. Sentiment analysis helps determine how particular traders are feeling about the market as they understand it at that time. Some might find it to be a bullish economy, others might feel it is bearish, based on which angle of trading they are seeing.
Essentially, even if a market appears to be bullish, but the majority of the traders feel that it is bearish, they will respond with their actions accordingly. Awareness of the actual situation won’t move the forex markets in one direction if everyone else feels they are taking another path. This makes it your responsibility to do more than just know what the market numbers are saying in the big picture.
You must perform sentiment analysis to see how the market is being perceived. A bullish market will be treated like a bear if most traders feel like it is a bearish market. Your awareness to the contrary will not stop most traders from behaving according to their emotions over the other information.
Using sentiment analysis as a devil’s advocate can help you to leverage your position for the future. Knowing how people will react despite certain facts will help you know if the market is going to move in a direction based on reality, optimism, or pessimism. If you angle yourself correctly, you can use market sentiment to ride the waves created by others who are aimlessly flowing back and forth with the tides.
Disclaimer: All information provided here is intended solely for study purposes related to trading financial markets and does not serve in any way as a specific investment recommendation, business recommendation, investment opportunity, analysis, or similar general recommendation regarding the trading of investment instruments. The content, in its entirety or parts, is the sole opinion of SurgeTrader and is intended for educational purposes only. The historical results and/or track record does not imply that the same progress is replicable and does not guarantee profits or future profitable trading records or any promises whatsoever. Trading in financial markets is a high-risk activity and it is advised not to risk more than one can afford to lose.