Understanding Forex Trading Market Sentiment

Every trader has his own opinion on where the price will go. In fact, the price at any time can move in one of three directions, up, down and sideways. The volume of transactions depends on how confident the trader is in his decision. The more confident, the bigger the lot. Market sentiment is the ratio of trading volume between buyers and sellers. If the total buy trading volume holds, the market is going up. If the sell trading volume is larger, the market sentiment goes down.

There are many techniques for identifying market sentiment in forex trading. Among them are analytical polls, statistical collections from exchanges, etc. The easiest way to determine market sentiment is to analyze orders in the depth of market (DOM) of each broker.

How to Measure the Strength of Market Sentiment

To measure the strength of market sentiment, traders can use pivot point indicators, commitment of traders (COT) which are regularly (weekly) released by commodity futures trading commissions (CFTC), or the ratio of buying or selling currencies issued by brokers. Measuring the strength of market sentiment is the same as finding out the current price trend and this can help traders determine whether a trader will open a long position with the flow or sell against the current that is formed in the forex market. There is one thing to remember, that there are several types of market sentiment.

Types of Market Sentiment

Bearish sentiment which illustrates that many forex traders are pessimistic about trading assets due to changes in fundamental or technical factors so that they are busy selling their assets into the forex market. And this collective action finally pushed asset prices even lower.

Bullish sentiment which illustrates that many forex traders are optimistic about trading assets because they see changes in fundamental or technical factors so they are busy buying assets from the forex market. And collective action like this will push asset prices to be more expensive because the availability of assets in the market is decreasing.



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