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Chapter 6, Part V. What type of analysis is better? Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 15, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    The role of sentiment analysis

    Here is another example. Assume that your fundamental analysis shows that economy is growing and on the way to recovery. This assumes that unemployment rate should gradually decrease. Let’s further assume that today is unemployment data release for recent month and you expect unemployment decreasing. You switch on the CNBC channel and a lot of big-headed guys talk about unemployment rate and how important to see it’s decreasing to support the pace of recovery, blah-blah-blah – anyway you’ve got the point - other market participants expect the same, and you just switch the TV off. When the data has been released and unemployment really shows a decrease, you expect to see appreciation of the USD rate and open a trade based on this. Instead of what you expected, you see a strong move against your position. Why, what has happened? Unemployment decreased, the economy grows, what’s wrong, why is everybody selling USD currently? The point is that you totally ignored the sentiment of the market, how bullish or bearish their view on economy. If you have watched CNBC a bit longer that you see that market expectations was for an unemployment reduction of 0.25%, but data that has been released shows a reduction just for 0.1%. It means that the current pace of growth is slower that was expected initially and the USD is overvalued. That’s why it leads to a sell-off of USD on the market. On that simple example you can see, how important Sentiment analysis is.

    Combination of different types of analysis

    Here I want to show you how you can combine all types. For instance you are the trader who trades long-term trends, and fundamental analysis is a particular important one for you. You do a good job and estimate possible long-term trends changing due to changing situation in fundamentals factors of the US economy, you take into account a public sentiment as well, to fairly judge effect of new released macro data.
     
    #1 Sive Morten, Dec 15, 2013
    Lasted edited by : Feb 9, 2016
    fran alvarez likes this.
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