Gauging Forex Market Sentiments

Despite the differences, all financial markets, from the stocks to the forex, have one thing they share in common: the participants all take the time to evaluate the market sentiment before conducting any transactions.

The market sentiment will determine if there will be uptrends or downtrends, if the prices will be bullish or bearish. As with almost everything in the currencies market, the key in assessing forex market situation is analysis.

There are numerous ways to go about performing a forex market sentiment analysis. Technical indicators are one way, as tools like Stochastics and MACD can detect trends in the market, which are based on forex market sentiments. Another way is go over various economic reports and figures, and among the most useful is the COT (Commitment of Traders) report.

The COT report is released by the CFTC in the United States every week. Although the reports vary with each country, the pertinent information is basically the same. The areas that the forex trader has to look at is the Non Commercial section (consisting mostly of traders and hedge funds), open interest (futures contract still in the market), long and short positions and changes from the previous report.

The reason the COT reports is important to the forex trader is by keeping an eye on the long (buy) and short (sell) contracts in the futures market, he will be able to tell if the market is overbought or oversold. This can help in determining if the market mood is in favor of selling or buying a currency.

While the COT report can help make an assessment of the forex market sentiment, it should not be the only report you should rely on. It is best to use economic reports in conjunction with technical analysis indicators.

Of course, one should also include other facts, like politics and legislative agendas, as they often come into play as well.

When attempting to gauge the mood of the investors, always be on the lookout for the big issues that you think may have a considerable effect on how the market may move. Next check out the technical indicators, and see if they are registering any signs that the market is reacting to the issues.

Evaluating the forex market sentiment is as difficult as devising any market strategy. It will not be easy for a new trader to gauge, nor is it for those who have been the currencies market for years. However, it is a skill that you must strive to learn, not just to profit, but just survive in the market.

If you miscalculate in your initial attempts, do not be discouraged. Remember that the forex is populated by people, who can react in ways that sometimes are just difficult to understand. Just stick to your strategies and eventually your judgment will become more accurate.