What is sentimental analysis?

  • December 29, 2021

What is sentimental analysis?

Sentimental analysis is a type of psychological analysis to measure the emotions of other traders, or rather, the majority of traders. If we want to mean sentiment in the word, it means emotions and feelings, so it is not unreasonable to expect that sentimental analysis means analyzing the emotions and feelings of other traders and, as a result, understanding their position or position in the market. In this article, you will learn what sentimental analysis is and what tools we can use to do this analysis.

Before you became acquainted with this type of analysis, you may have thought that technical or fundamental analysis was sufficient to make a profit in the market. This may be true, but it is interesting to know that without sentimental analysis, the other two analyzes have no meaning at all; Because most traders end up trading with their emotions.

What is sentimental analysis?

What is sentimental analysis?

The Forex market simply does not display all its information to everyone because then all traders behave the same. Of course, this is not the way everything works.

This is because the sentimental analysis is so important. Every trader has his thoughts and views on market behavior and whether to enter the trade or not.

Now it’s time to take a deeper and more professional look at this type of analysis:

What is the sentimental analysis and what tools does it have for trading?

The market is just like Facebook. Is a complex network of people who want to copy our new posts. Far from being a joke, the market represents the feelings of me, you, Warren Buffett, or anyone. Each of these people also has emotions. For example, one may feel intimidated and sell in a support area instead of buying, and vice versa.

The thought of any trader who develops in the position he assumes forms the overall sentiment of the market, regardless of what information is out there. The problem is that as a small trader, no matter how much you believe in a trade, you can never change the market.

Even if you believe the dollar is going to rise, but others believe the market is bearish, there is nothing you can do (unless you are George Soros or Goldman Sachs).

As a trader, you need to consider all of the above. This is why sentimental analysis is used.

It depends on you how the market is doing. Is it bullish or bullish or bearish or bearish?

Next, it’s up to you to decide whether to use market sentiment or psychology in your trading strategy. If you decide to ignore the sentimental market, the choice is yours. But we warn you, your loss is near!

You may be interested to know that sentimental analysis is usually an indicator of the opposite or the opposite.

 

95% theory

If you have been in the trading world for a few mornings, you must have heard the saying that 95% of traders are unprofitable and make mistakes in the position market. Of course, if we want to be a little more specific, 70-80% of traders take the wrong position, which leads to their loss. Doesn’t this sentence make you think of an idea?

At this point you may have a bad idea: If 80% of people in the markets make mistakes and I oppose them, I will win. So if you know where all these resulting traders, who make up between 70 and 80%, are in the buying position, all you have to do is sell 🙂

So the better idea is to act against them!

The problem with this theory, of course, is that almost no institution has statistics on traders’ positions, and if anyone makes such a claim, they are lying. But there are informal shortcuts that can be used with this technique.

How to use sentimental analysis?

The best tool for sentimental analysis is trading volume. That’s why I think those who do the charting in our stock market are kind of sentimental analysts because they’re all about the volume of trades. But what about a market like Forex? How can a sentimental analysis be implemented in a Forex market where volume does not make sense? The answer to this question lies in the following:

Use return points

A simple method is to use the method of identifying market sentiment with return points. This method is described in a separate article, so let’s explain the second method:

Use statistics except for the whole

Are you aware that in the Forex market, no one knows the volume of trades? 80% of the market has no information about its position, but some sites and indicators give partial statistics of the position of a large number of traders (for example, in a particular broker). We can use this information to our advantage in the right place.

One of these sites is myfxbook. You may be familiar with this site. This site has a strong community or association that gives you a statistic of market sentiment based on the opinions and positions of its users, which are not few.

Use the COT report

You must have come across the fact that despite all the factors, you were sure that the market should move upwards, but surprisingly, the market is moving in the opposite direction. As a trader, you need to understand that the market as a whole is a combination of the opinions, views, and ideas of everyone in it. As we explained above, the combination of all these emotions that market participants have is called market sentiment.

If we have a volume tool (for example for stocks), the following rules are very simple:

  • If the stock price is rising and the trading volume is falling, it may be a signal of market saturation (ie it is time to sell).
  • If the stock price is falling but the volume is rising sharply, it may be a sign that the market sentiment is shifting from bear to bull.

 

As we explained above, there is another way to solve the problem of no volume in transactions:

Use of COT reports in Forex market. This report, also known as the Traders Commitment Report, provides statistics on the positions of Forex futures market traders. Now you may ask why the futures market? We will describe in detail the modification of the COT report and how to use it in a separate series of articles. Just read the following articles to be fully informed about this method at textoken.io.

So another way to understand market sentiment is to use this report.

The image below is an example of the whole financial market and its psychology and clearly shows the role of sentimental analysis. The common people always see a show! If you want to win, try not to associate with the common people who make mistakes!

financial market

financial market

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