Sentiment Analysis

Earlier, we said that price should theoretically accurately reflect all available market information.
Unfortunately for us traders, it isn’t that simple. The markets do not simply reflect all the information
out there because traders will all just act the same way. Of course, that isn’t how things work.
Each trader has his own opinion or explanation of why the market is acting the way they do. The
the market is just like Facebook – it’s a complex network made up of individuals who want to spam our
news feeds.
Kidding aside, the market basically represents what all traders – you, Pipcrawler, Celine from the donut
shop – feel about the market. Each trader’s thoughts and opinions, which are expressed through
whatever position they take, helps form the overall sentiment of the market.
The problem is that as traders, no matter how strongly you feel about a certain trade, you can’t move
the markets in your favor (unless you’re one of the GSs – George Soros or Goldman Sachs!). Even if
you truly believe that the dollar is going to go up, but everyone else is bearish on it, there’s nothing
much you can do about it.
As a trader, you have to take all this into consideration. It’s up to you to gauge how the market is
feeling, whether it is bullish or bearish. Ultimately, it’s also up to you to find out how you want to
incorporate market sentiment into your trading strategy. If you choose to simply ignore market
sentiment, that’s your choice. But hey, we’re telling you now, it’s your loss!
Being able to gauge market sentiment can be an important tool in your toolbox. Later on in school,
we’ll teach you how to analyze market sentiment and use it to your advantage like Jedi mind tricks.