sentiment analysis, also known as market sentiment, is a set of techniques that analyze people’s viewpoints and opinions.
In the case of the market, the opinions of the market participants are examined.
Sentiment analysis is a key point in understanding how markets will move and how traders will act when opening and closing positions. When you try to do sentiment analysis you are therefore trying to see the confidence that investors have for a currency or stock.
Each trader has his own vision of market trends and consequently operates on the basis of his convictions. By trading, each shareholder expresses his opinion by opening or closing a position, investing in one currency or stock rather than another.
In this way the stock market, be it Forex or otherwise, changes according to the moves of investors.
Sentiment analysis is therefore a crucial point for understanding the psychology of the trader and predicting new trends. For the Forex market it is often done through the report COT (Commitment of Traders Report), published every Friday at 19:30 GMT by the Commodity Futures Trading Commission.
The report in question offers traders the opportunity to understand how shareholders have moved in the previous week and what open positions have been. Through the analysis of these graphs, some traders are then able to understand how the situation will evolve in the following period.
Thanks to the analysis of this data, the most experienced traders are able to understand when is the best time to open a position and obtain profits from the investment.
To learn about some useful tools for this analysis, we advise you to read: Forex, sentiment analysis: three useful tools for traders
