Forex Trading (Trading Forex) becomes the biggest market with transaction value up to $ 5.5 billion every day. Trading in the forex market is driven by fundamental factors that provide an overview of market sentiment and is complemented by technical factors ie graphic form of price movements in the forex market. Identification or measuring sentiment in the forex market becomes an added value for traders in making trading plans. Although sentiment is derived from fundamental (non-qualitative) analysis but it is meant to measure the sentiments in the forex market here from a technical (quantitative) point of view.
Measuring sentiment in the forex market can technically be done using Sentiment Indicators. That is a technical tool to remind traders in extreme conditions (peaks or valleys) and possible identification of reversal.
Sentiment indicator can be a percentage, or raw data, how many traders have taken a certain position in a pair. For example, if there are 100 traders trading a pair, it will show 60 traders do buy and 40 traders do sell. Or in percentage is 60% acts as buyer and 40% acts as a seller in total trading in a pair.
When the percentage of traders in one position reaches an extreme level, here is the role of a sentiment indicator. For example, if the pair continues to increase, and finally 90 buyers from 100 traders (10 sellers), there are few traders left to continue to drive the uptrend. The sentiment indicator shows it’s time to start monitoring the reversal level.
Sentiment indicator is not a signal where we have to buy or sell. Wait for the price to confirm the reversal before acting on the sentiment signal. A pair may be at the extreme (high or low) level for long periods of time, and there may not be any price reversals at all.
“Extreme levels” will vary for each currency pair. If the price of a pair has historically reversed when the purchase reached 75%, then when the number of purchases reaches the same level as before, the possibility of the pair is at an extreme level. You should pay attention to the price reversal signs. If the other pair has historically reversed course in the range of 85% of the trader who made the sell order, then you will see a price reversal.
Sentiment indicators are available in different forms and from different sources. Or if this indicator oscillator then it can be interpreted as overbought and oversold level.