In all markets, including forex, prices are determined based on supply and demand. As a result, traders' behavior and emotions in buying and selling define the goods and assets' price path. In the forex market, it is possible to analyze the assets' future prices by analyzing traders' emotions and behavior, which is called Sentimental analysis.
The word Sentiment means feelings and emotions, and sentimental analysis deals with the psychology of traders' emotions and behavior in the forex market, and it gives a general conclusion about the adequate space to buy or sell. In other words, based on traders' behavior and feelings, sentimental analysis indicates that most traders are willing to buy a currency pair or sell it. Therefore, the sentimental analysis provides the market's general mindset to the traders.
In sentimental analysis, by using the traders' behavior through existing indicators such as the market leaders' activity index, the fear and greed index, or the VIX index, etc., it is possible to analyze a currency pair or an asset's price future in forex. This type of analysis identifies the sentiments of the market majority regarding whether the market is bullish or bearish, optimistic or pessimistic, and the market as a whole in financial markets such as forex, cryptocurrency, and stocks.
Sentiment analysis is usually not used alone. Based on this, in Sentimental, currency pairs or assets are analyzed based on fundamental or technical analysis first, and then, using sentimental analysis, market sentiments on selected currency pairs or assets are evaluated, and the market's ascending and descending direction is determined. Sentimental analysis can be used to determine the market's general atmosphere, and it can be used as a good confirmation for fundamental and technical analysis.
Sentimental analysis is significant because, based on statistics, although most traders use technical and fundamental analysis, they lose in the forex market. Therefore, with sentimental analysis, you can be aligned with successful and professional traders and become part of the forex market's profitable traders.
In the forex market, getting accurate information about the traders' behavior is unattainable. For example, it is not possible to know the exact number of gold symbol buyers or what percentage of people consider the investment space suitable and risk-free. But some indicators can provide users with the market sentiments' atmosphere in general with the limited statistical community atmosphere, and traders can use these indicators to conduct sentimental analysis of the forex market. Further, we will introduce the most important sentimental indicators.
As mentioned, there are no accurate statistics of currency pairs and other forex symbols' buyers and sellers. But some websites provide users with the trading volume stats of the forex market's different symbol buyers and sellers in reputed brokers. This information includes the number of symbols' buyers and sellers, their trading volume, the profit and loss amount, etc. Therefore, by using these statistics, you can check most traders' behavior and feelings about the desired symbol and use them in your sentimental analysis.
Note that this statistical population is a limited part of all Forex market participants, and there is a possibility that making trades based on these statistics will lead to losses. As mentioned, sentimental analysis and indicators are often used to review the forex market's overall atmosphere and as trades' confirmation for fundamental and technical analysis.
The VIX index is one of the forex market's most important indicators, which as a trader, you must review it. The VIX index is also known as the fear index. This index shows the risk and fear level of the stock market, determined by American traders. Whenever this index is growing, it means that the stock market's risk is increasing, and traders start selling their stocks. So, risky assets like stocks fall, and safe assets like gold rise. But when the VIX fear index decreases, traders feel that the stock market can be a good investment opportunity. The VIX index is a suitable tool for analyzing market sentiments, which can be reviewed in sentimental analysis. You can see the number of this index by searching the VIX index online.
With a bit of trading experience in the forex market and sufficient knowledge of candlesticks psychology, it is possible to analyze and understand the traders' behavior and emotions as well as the desired currency pair's sentimental analysis through the candlestick chart. To achieve this ability, traders must be familiar with the knowledge of the candlesticks' formation and psychology and the candlestick chart. Then they can effortlessly perform sentimental analysis by analyzing the charts.