HOW FOREX SENTIMENT ANALYSIS WORKS

Understand how forex sentiment analysis work, you will be a better trader.

An example of how sentiment analysis can be applied in forex trading is a large single movement in GBP/USD in 2016, with negative sentiment sending GBP slumping to a 31-year low following Britain’s vote to leave the European Union. After broadly positive sentiment in the year that followed, negative sentiment then took over much of 2018 again before prices started to trend higher in 2019.

Another example of net short sentiment can be seen in the EUR/GBP chart below, with 21.9% of traders net-long with a ratio of traders short to long at 3.58 to 1. The chart shows in blue the percentage of IG traders taking a net long position, and in red the percentage taking a net short position.

Chart to show net negative sentiment alongside price action

Rising sentiment may mean there are few traders left to keep pushing the trend up. In this case, traders may want to watch for a price reversal. On the other hand, a price moving lower, showing signals that it has topped may prompt a sentiment trader to enter short. The below chart shows an example of the EUR/USD pair experiencing net positive sentiment.

Chart to show net positive sentiment alongside price action

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