Sentiment Analysis is a perfect addition to all technical parameters you use to assess Forex market performance. It is the feeling or tone of a market, or its crowd psychology, as revealed through the activity and price movement of the securities traded in that market. In broad terms, rising prices indicate bullish market sentiment, while falling prices indicate bearish market sentiment.
Sentiment Analysis is used to guage how other traders feel about the currency movements wheather overall currency market or particular currency pair.
Using Price action theoretically reflect all available market information but for forex traders its not that much simple.
The forex markets do not simply reflect all of the information out there because traders will all just act the same way. Of course, that isn’t how things work.
That's why sentiment analysis is important. Each traders has his or her own outlook of why the market is acting the way it does and whether to trade in the same direction of the market or against it.
The market is just like social media platforms. It's complex platform build among individuals who want to spam our news feeds.
The way to understanding market sentiment
Market Sentiment or investor sentiment always based on Day traders and technical analysts rely on market sentiment. Investors typically describe the markets sentiment as bearish or bullish. When bears are in control currency prices are goes down. When bull are in control, Currnecy prices are going up.
Some investors profit by finding stocks that are overvalued or undervalued based on market sentiment.
Market sentiment refers to the overall attitude of investors toward a particular security or financial market. It is the feeling or tone of a market, or its crowd psychology, as revealed through the activity and price movement of the securities traded in that market. In broad terms, rising prices indicate bullish market sentiment, while falling prices indicate bearish market sentiment.
Real World Example of Market Sentiment
Market sentiment turned bearish in December 2018 when several factors worked together to unnerve investors. Firstly, fears grew over slowing corporate earnings. After several years of double-digit earnings growth for many companies in the S&P 500, many analysts predicted that 2019 earnings would increase by just 3–4%.
Federal Reserve Chair Jerome Powell stoked those fears at his monthly press conference when he said the central bank’s balance sheet runoff was on autopilot. The market viewed his comments as “hawkish” and not accommodative for a slowing economy, which further dampened market sentiment.
Finally, unresolved trade tensions between the United States and China that saw tit-for-tat tariffs imposed by the world’s two largest economies throughout 2018, as well as a U.S. government shutdown, compounded with the issues above to severely damage market sentiment over the month.