Forex is fascinating for many reasons, but one of the reasons why it interests us is because there are just so many different perspectives to look at. Maybe that’s something that will frustrate you. Don’t worry — once you really get into forex you’ll find that multiple perspectives is definitely a good thing? The reason why you will want to always think about different things when it comes to forex is that your strategy should represent the different areas of influence. You can’t go wrong that way, and you certainly can’t find yourself worrying about how everything will click into place. When you get into forex, you have to look at minute details as well as macro details in order to stay competitive.
So, where does sentiment analysis fit into things? That’s a great question! First, let’s define sentiment analysis as it relates to forex trading.
Sentiment analysis means looking at how traders generally feel about the market. You can look at what people think about the market by charting — what positions are being taken in the marketplace. If everyone is feeling bearish on the dollar, your feelings aren’t really going to overturn it. But what you have to do is look at how to profit from the current market condition as it stands.
Using sentiment analysis to your advantage is something that’s not always easy. Whenever you’re dealing with emotions rather than hard facts, you’re going to have to be careful not to go overboard. We still think that fundamental and technical analysis are important, and that they shouldn’t be skipped over for any reason. Later on as an investor, you might find yourself trying to use market feelings to your advantage. As a beginner, we would advise thinking about the numbers and building a plan from that angel.
As always, you will want to test new theories in a sandbox rather than in real time. That’s a good way to lose money before you even understand how your system will play out. The only difference between a demo account and the real thing is that your demo account doesn’t run on real money. It will still function like a normal forex account, and this is a very important distinction.
We mention sentiment analysis because it’s something that you will probably see in forex forums, and we don’t want you to be thrown off guard. Never feel like you have to add in something just to get attention or to feel like you’re part of a group. It’s perfectly fine to go at your own space in the world of forex — we won’t tell anyone! 🙂