Sentimental Trading

Sentiment analysis

Sentimental analysis is perhaps one of the easiest ways to make money trading. There is nothing that is truly “easy” in Forex trading, but successful sentimental analysis is based upon skills that most of us already have before we started trading. Rather than having to learn how to read charts or financial statements, sentimental analysis simply has us looking at the news and then figuring out what kind of impact that news can have on markets. This is why sentimental trading is quickly growing in popularity.

For a recent example of sentimental analysis used in the market, let’s look at the price of crude oil, the world’s most highly traded commodity. On Thursday, March 1, 2012, a Saudi Arabian pipeline was reported to have exploded. The repercussions of this should have been realized by traders immediately and used to their advantage. Oil is a rare commodity, an explosion would mean less oil being produced, or at least a scarcity in the amount of oil overall. Scarcity drives up prices, therefore, buying oil early on once this news was received should have paid off. And smart traders were paid off here: the price of crude oil went up almost $2.00 in just a few hours.

The implications of this type of trading are huge. You don’t need to buy an expensive charting package nor do you need to spend hours upon hours of trying to understand the lines on them. Trading can be mastered by just about anyone using this method. This doesn’t mean those charts should be ignored, however. Technical trading is a huge part of day and other forms of short term trading. Because so many traders within the Forex world utilize technical analysis, it is important that you have a firm grasp upon it as well. But the main point is that you don’t need to use technical analysis to find trades anymore. Trading the news is much more effective at identifying big movers. Technical indicators should then be used to confirm such a trade.

Too much analysis is a bad thing. The “paralysis by analysis” effect means that you might miss out on trades if you spend too much time doing research. Sentimental analysis makes this less likely to happen. Rather than researching charts and graphs, you will be reading the news and basing your movements off of this. For most people, this is a much easier way of trading and can help avoid the worrying that comes along with not being entirely sure about how to respond to a movement on a price chart. Trading the news encourages action first and research second, rather than the big flaw in technical analysis which revolves around sometimes too thorough research.

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