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Sentiment analysis for Forex currency pairs

Statics are inexorable. According to them, in the long run, most people lose the majority of their invested funds. Analysis of the mood prevailing on the financial exchanges allows us to cut ourselves off from the crowd, despite the fact that our intuition will always tell us to follow the voice of the majority dictating the terms of trading. Then the matter becomes a little complicated. Because of the setbacks, more and more people feel powerless in the face of the market, which they believe is working against them. In that case, they ask themselves questions – is it possible to earn on the stock exchange?

Manipulation of the stock market is something normal

Forex currency markets (especially the popular EUR/USD or USD/JPY instruments) are vulnerable to manipulation by larger institutions, which are the main providers of liquidity. This results in the fact that stock exchange sites, by sharing sentiment measurement, tell us that the price behaves contrary to the predictions of most investors, which is behind the large banks on the stock exchange. This phenomenon is related to the absorption technique, during which heavy limit orders are set by major strategic players.

This results in them absorbing market orders placed mostly by retail investors. When the right number of limit orders is executed, there is an aggressive move in the direction desired by the institution. Then investors positioned on the wrong side of the market panic and drive the movement contributing to massive loss cuts.

A feature of absorption is the natural occurrence on all instruments, however, currency exchanges and pairs with the US dollar (or the most popular ones) are extremely susceptible to them.

False breakout and false breakdown

In certain strategic places, institutional traders set limit orders. For the most part, retail investors assume that they rest in areas of supply and demand,which are called key support and resistance levels. However, this is not entirely true.

Banks and funds very often use a technique called false breakout/breakdown. For each price return to a key level, average stock market traders expect a specific reaction. Since the price has no major problems with overcoming the previous level of demand/supply, it gives the impression of exhausting pending orders and breaking the previous structure. This provides an incentive for the crowd of novices to open a position.

The passage of time, however, shows that the block of pending orders has only been postponed. Then the money of the trapped traders is taken over, and the price, while respecting the support/resistance area, goes further in the direction set by the institutions.

Currency Strength Meter

One of the most interesting analytical tools is the Currency Strength Meter, which helps to determine the current strength of individual currencies. The use of it results in such a plus that there is a possibility of selecting currency pairs due to their current results.

Let's give an example: the strongest currencies are the Euro, the British Pound Sterling and the New Zealand Dollar. The weakest will include the Japanese Yen and the Swiss Franc. Using this knowledge, let's look for upward trends using appropriate pairs, e.g. combining strong currencies with weak ones (EUR/JPY, EUR/CHF, NZD/JPY, GBP/JPY). In the case of declines, these can be, for example: JPY/GBP or CHF/GBP.

The use of a currency strength meter can protect us from investing in pairs that are a comparison of two bullish ones, i.e.: EUR/GBP or DEPRECIATING JPY/CHF.

After all, Currency Strength Meter is not the final answer to how to play the stock market. Remember, however, that the discrepancy between the strength of individual currencies can contribute to a specific momentum,which can be used when looking for investment opportunities.

Currency Strength Index

This is the second, useful tool that allows you to get an orient yourself in the situation prevailing on the markets. With the help of the Currency Strength Index, we directly compare specific currencies with each other, which is a great help in investing in the stock market. Take, for example, the most popular relationship between the US Dollar and the Euro – EUR/USD.

To simply take advantage of such links, you can choose a currency that is in a downward trend and observe pairs of pairs that include it, in which there are strong bullish currencies on the opposite side. This treatment can be helpful in recognizing strong trends more easily.

Cryptocurrency Strength Meter

Lovers of cryptocurrency investments can feel appreciated, because developers creating tools for trading portals, provide for these instruments comparison engines similar to the aforementioned Currency Strength Meter. With their help, you can easily see current trends in popular tokens.

Author

  • Trainer in the field of finance, as well as a manager and speaker. She enjoys the development and success of her colleagues. He describes himself as an active, dynamic and organized person. Diagnoses the financial problems of his clients. After work, he rides a motorcycle and sails.

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