HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
XM information and reviews
XM
86%
NordFX information and reviews
NordFX
86%

Sentiment analysis for Forex traders


There are many ways to level up your Forex skills, but defining the trends is a necessity if you want to place successful orders. So, how do you identify a trend? That’s where Forex sentiment analysis comes in handy.

Forex, without any doubt, demands attention to many details and a thorough analysis of the current market situation. Investors use fundamental and technical analysis to achieve this perfect balance of being informed and making their own trading decisions. However, there is a third type of analysis - a bit more vague yet just as important.

Forex sentiment analysis helps you understand the overall feeling of the market participants towards a particular asset. To put it simply, it’s a summary of what traders think about the currency pair - will the price go up or down. Forex sentiment analysis doesn’t give you the exact information on when to enter and exit the market but gives you room for action best tailored for your trading strategy. So, how do you identify the Forex sentiment?

In other financial markets like stock trading, you can access the traded volume and define the “crowd-pleaser” pretty quickly. However, when it comes to Forex, you can use two tools that will help you:

The contrarian trading strategy is pretty simple to explain. The name speaks for itself - those who use this type of trading place their orders contrary to the trend. It’s all about taking advantage of the situation. Basically, you can buy assets at a lower price while the trend is bearish and sell at a higher price if the bulls push it up. Those traders expect the trend to reverse, allowing them to close their deal in profit.

Contrarian traders go against the first rule of trading: always follow the trend. This strategy might not be suitable for all traders, especially those who have just started their Forex journey. However, you can use contrarian indicators to make sure you better understand Forex sentiment.

One of the best indicators for those purposes is the Relative Strenght Index (RSI).

On a chart, you can see RSI as a line that moves between 0 to 100, where: 

What this indicator can tell you is: “Too many people sell/buy this asset, the price is going to reverse soon!”. Using it as a part of your trading strategy can really help you pinpoint the approximate moment you need to open or close your deal.

Commitment of Traders report

The Commodity Futures Trading Commission (CFTC) provides the Commitment of Traders (COT) report every Friday. This report shows the positions opened by three types of traders:

Commercial traders are financial institutions that want to protect their funds from market uncertainties. Their most distinctive characteristic is that they tend to open bearish positions when the price reaches its peak and vice versa. Non-commercial traders are all about making a profit. They are trend followers and always have open bullish positions when the price is rising and bearish when the price goals down. Small traders are hedge funds and individual traders who often tend to ignore big trends and might even go anti-trend.

To help you see the correlation, you can use the COT indicator, which usually has three lines for those types of traders. Non-commercial traders are excellent indicators of trends, while commercial traders can help you identify pivot points.

This indicator won’t give you a signal to enter the market at the exact time, but it will help you tailor your trading strategy and define your trading style. Forex market sentiment is a great way to analyse the market and help you shape the course of your future actions. Knowing other traders’ positions can be a gamechanger for you, so use this information wisely and have very successful trading!

#source


RELATED

Technical analysis: Beginners Guide

By definition, technical analysis is the forecasting of the future price action of an underlying financial asset based on its past price behaviour. Essentially, technical...

Basics of Options Trading: Understanding Put vs Call Option

A popular tool for speculation is options trading, where money can move fast, and traders can gain (or lose) their stakes quickly. But what are options contracts...

Best Trading Indicators: A Guide to the 17 Most Popular Technical Analysis Tools

In the intricate world of financial trading, one can easily get overwhelmed by the enormous amounts of data flooding the markets daily. Technical analysis offers a structured approach...

XPro Markets - Boost your Technical Analysis Skills

What is your angle when trading in the financial markets? Do you opt for the technical analysis strategy or are you a "fundamentalist" when it comes to trading?

Choosing a Trading Instrument: How to Trade Indices

By now, you must be familiar with the names of the world's major stock indices: Dow Jones, S&P 500, NASDAQ, DAX30. But did you know that they...

A Comprehensive Guide to Technical Analysis: Definition, Tools & Examples

Technical Analysis is a systematized approach employed by traders to predict price movements and trends by examining market data, primarily price and volume...

Which indicator is best for forex trading

Success is what everybody wants when first enter the forex market. Just for success they do learn how to trade themselves, hire brokers and cooperate with each other...

Art of Trend Analysis Revealed: Strategies and Types

In the intricate world of financial markets, understanding trends is akin to deciphering a vital code. Trends act as a compass, guiding the trajectory of asset prices and heavily influencing trading decisions...

How to Calculate the Value of One Point in Forex

A point is a very important concept for calculating possible profit or loss in financial markets. When conducting transactions, you need to clearly understand how much...

Leverage and Margin in Forex

Leverage and margin are the terms each trader starts with. The concept is simple, so even a beginner trader will catch on fast. However, there are pitfalls that may affect traders...

Unlocking the Power of Technical Analysis in Trading

Technical analysis, often regarded as a cryptic endeavor for newcomers to the world of capital markets, is an essential tool for traders and investors seeking insights...

What Are Order Blocks In Forex? Unraveling the Impact of Big Market Players

In the vast and intricate world of Forex trading, the presence of order blocks plays a crucial role in shaping market dynamics. Introduced by large financial institutions and central banks...

Moving averages explained

Learn how to trade with one of the most popular Forex indicators - Moving Averages. In this article, we explain how to use moving averages as a technical analysis...

Price Gaps In Forex Trading: Types, Causes, And Strategies

Price gaps are a common phenomenon in forex trading, characterized by a significant difference between the closing and opening prices of an asset...

Types of analysis when trading in financial markets

It is well known that trading in the financial markets is one of the most dynamic and effective ways to make a profit, even in the absence of significant initial capital...

What is Fundamental Analysis?

Understanding the core of an activity always makes it easier to do it regardless of how complicated it is. That is the case with fundamental analysis. While it may be done through...

What Is MACD Indicator and How It Works?

The Moving Average Convergence Divergence (MACD) is a technical indicator that measures a relationship between two exponential moving averages...

Bullish vs. Bearish Market: How to Distinguish

In trading, you should focus not only on learning new strategies and indicators but also on discovering the terms that are widely used within the trading community. This will help...

What Is Crypto On-Chain Analysis? Definition & Meaning

Blockchain transaction data is publicly available, creating possibilities for data science and machine learning. All trading and investment activity can be extracted from the public...

Technical Analysis: Directional Movement Index

Get ready for another instalment in our technical analysis educational series. After a multi-week hiatus, we’re back and ready to share even more knowledge

Vantage information and reviews
Vantage
85%
FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.