Sentiment is usually backward looking and is incorrect so frequently that it is used by professionals as a counter indicator of market direction. Daniel Loeb
The Forex Exchange market is the worlds largest financial market with an estimate daily turnover of over $5T, which is more than 25 times bigger than the US equity market. Although the FX market to some extent seems to be irrational because they don't follow the interest rate differential as expected. This could indicate that investor psychology plays a significant role in exchange rates fluctuations and there are consistently empirical evidence which suggest that sentiment may be the key to understanding this apparent irrationality.

Each and every trader will always have an opinion about where the market should go, and everyone will have their own explanation as to why the market is doing what is doing. Sentiment may drive trades however sentiment does not always translate into actual trades, so at times it can be deceiving.
It is what people actually did in the stock market that counted - not what they said they where going to do" Jesse Livermore

  • What is Market Sentiment?

Whenever someone takes a trade he is taking a commitment and is expressing his view on what the market should do. The market sentiment is composed of all this opinions, trades and ideas of all the participants in the market. This combined feelings that the majority of the market participants feels is what we can define as market sentiment.

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If you would like to continue reading further follow the link: Sentiment Analysis in FX where you will find more details about how to interpret the market sentiment and I've also proposed an actual example on how to play with the odds and make a better decision in your trading activities.

Also in my last blog post where I wrote about RBZ rate decision, you can find even there some kind of sentiment analysis and how to interpret the market sentiment and more importantly how to make a trade based on it, just follow the link here: RBA Keep Rates on Hold

Best Regards,
Daytrader21
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