A sentiment is a general thought, feeling, or sense. A popular fashion trend is an obvious example of sentiment: the feelings and emotions of fashionistas concerning a specific design. In free markets, sentiment refers to the feelings and emotions of market participants. In the forex market, all of the participants’ feelings concerning a specific currency pair may result in a dominant psychology that is either optimistic or pessimistic. Some hard-core sentiment analysts believe that the price itself is solely a result of where the collective psychology lies in terms of optimism or pessimism. Invest Diva thinks that sentiment is one of the main factors affecting a currency pair’s price, but it is not the only one. Sentiment analysis should be carefully added as one of the major points of the Invest Diva Diamond analysis. Especially when you are trading in a shorter time frame and the psychological state of the forex party experiences peaks (bullish extremes) and valleys (bearish extremes), these sentiment extremes can greatly affect the movements of the currency pair.
There are different ways to gauge the sentiment of the forex market. Some sentiment indicators are based on past prices, and some of them show less of a lag than others. While past prices can give us an idea of future prices, it is always good to check in with the current sentiment as well.