The Forex is a global market that is highly decentralised. It is by no means an easy market, sometimes every technical indicator may point in one direction but the market might move in the other. Another time the fundamental outlook of the economy of a country may be extremely bearish for its currency yet it keeps moving higher than the others.
The question that arises is what do you do when the downtrend is so strong?
The answer is simple- Market Sentiment. Market Sentiment is an extremely important tool when trading in Forex or any other financial market. It is the momentum of the market, all FOREX Brokers whether big or small have an opinion when trading in Forex. Some might favour the bullish and others bearish, the Market Sentiment is the sum of all their opinions combined into one.
So, how do you read market sentiment?
- The Trend
The trend might be termed as the most important indicator as it shows the market sentiment and it’s a tricky business. The trend in the daily chart might be pointing to a certain direction and the trend you might look at could be in the other as it was just the trend within the trend as it’s called. So before you place any order on the smaller time frame chart the bigger charts need to be consulted. This way it can be seen which way the market feels and which side it may really be positioned on.
- Price Action
Another way to understating the market could be concentrating on a single pair at a time. There are numerous highly successful traders that only trade on their instincts. How fast a certain pair may move in both directions needs to be observed.
When the up moves are faster than the down moved the traders are usually ready to buy first and then pose questions. This basically shows the bullish nature of the overall market sentiment. How a pair may react to economics related news can also be observed. For example if there is a good economic news from country A but the currency A/B bounces based on it are getting smaller every time , it may be said that the market sentiment for the pair are getting bearish.
- The COT Report
When stocks are being traded, the volume of trade can be looked up as the stock market it centralized at the stock exchange but this does not apply to Forex. The best volume indicator for the Forex is the commitment of traders report (COT). It shows the net short and long trades in the market and is published every Friday at 7:30 GMT by the CFTC. This report can help spot the positioning of the big players as it affects the spot Forex markets in near future.
While these tips and tricks do not guarantee you millions but they can always help you minimize your losses.
We are coming up with more FOREX trading strategies next month, so stay in touch with us and do provide your feedback.