What is Sentiment in the Forex market

What is Sentiment in the Forex market

Sentiment in Forex Trading

The Trading Market Sentiment you may have come across the term market sentiment and you may be wondering what is the market sentiment.

Sentiment in Forex Market
Sentiment in Forex Market
Thankfully it is an easy term to understand as it simply means the mood of the market now is going to help you in your trading if you start to think of the market as a person this concept of the market as a person is drawn from a book by Benjamin Franklin called the intelligent investor in that book he describes the market as a person.

Mr. the market in a way this is a fair reflection since the market as a whole is simply a reflection of many thousands of individuals now every day Mr. the market will offer you a price to trade with the problem is Mr. market has emotional problems and that is reflected in his price some days he's manically depressive others other days he's euphoric day after they he is they're offering you a price to trade with your responsibility is to try to take advantage of his huge mood swings sometimes he will be overly euphoric and at other times overly pessimistic now these times may offer you opportunities to trade however you also have the option to ignore Mr. market if he's behaving irrationally now the key thing to grasp is that you use the market as a servant and not as a master so if Mr. market turns up one day in a very foolish mood and you allow that to influence you then you're in trouble sometimes Mr. market will ignore significant data or fundamental analysis but sooner or later he can't and there's a great quote of Benjamin Franklin that's well worth remembering as a guide to the market because what Benjamin Franklin said he said in the short run a market is a voting machine but in the long run it is a weighing machine it's well worth pondering at that phrase of Benjamin Franklin.

Sentiment in the Forex market
So market sentiment essentially the mood of Mr. market on any given day so think about the market is a bit of a moody business partner every day you have to assess what kind of mood he's in and I'm sure we can all relate to people we know whose mood we have to watch very carefully as it's prone to wild swings this is what Mr. market is like and understanding his mood is akin to understanding sentiment every session the market will have a mood or a sentiment and the sentiment can even change throughout the session the sentiment could be risk-off in the Asian session but then risk on in the London session every day the market is digesting information from all around the world and that's affecting the mood or sentiment of the market.

Sentiment in the Forex market

So your job as an investor is to know the market sentiment every time you approach the market it is so important if you don't know the market sentiment you can't really expect to succeed in the financial markets let me repeat that if you don't know the market sentiment then you can't really expect to succeed in the financial markets for example if you're looking to sell the yen in a heavy risk-off environment you're going to lose your trade if you simply knew the sentiment for that day you would have known to avoid that trade since the yen is bought in a risk-off environment Mr. market would be risk-averse that day so look here on the charts euro yen which is a good pair for a risk on or risk-off sentiment and if you'd approached on the 23rd of May if you'd approach that day thinking oh I'd really like to buy euro yen and it you and it was a risk-off sentiment you would have been wasting your money so once you've established the sentiment you can then look to take advantage of it because perhaps the day sentiment is against the main fundamental driver for a currency pair in this case the sentiment may offer you a chance to join the main fundamental direction with a better price the takeaway piece of advice is this sentiment is simply the mood of the market and I need to know the mood of the market every time I'm trading so that I don't misjudge it trade safely trade wisely and trade knowing the mood of mr. the market for every single session.

Sentiment in the Forex market


Thank You!