Forex price movement what makes the price a simple question? Yes but most traders get it wrong, they either think its supply and demand fundamentals or prices move to some higher god on charts – neither is true.
Prices move based upon the sentiment of the people trading – they all come together to make a price so the equation for price movement is:
Supply and demand Fundamentals + investor Perception of them = Price
Lets look at why technical analysis and fundamental analysis have limitations and two great sentiment indicators you can use to add to help you judge sentiment and make bigger profits.
You can’t trade the fundamentals in isolation. Why?
Because all the facts are there for people to see – but we all draw different conclusions from what they mean colored by our emotions. You can’t trade them we all have the information now in a split second and it depends on sentiment toward them which way they go.
Charts don’t move to a scientific theory that many people believe.
You will find many chartists claim that because human nature is constant, there is a scientific formula for market movement – but that’s rubbish!
If there were, we would all know the price in advance and there would be no market!
Charts are useful however in showing sentiment as short time price spikes never last for long and prices always correct back to fair value, this is easy to see on a chart looking backwards – but how do you judge sentiment to back up what you see on a chart?
Use sentiment indicators and here are 2 that if you use them, will help you spot market tops and bottoms and improve your market timing.
Been around for decades and is simply a poll but a very useful one.
If over 80% of people polled are bullish, sentiment is at a bullish extreme and a correction is likely and if the figure is below 20%, prices are at a bearish extreme and a rally is likely.
The above represents opinions not action and while it’s useful, it becomes even more useful when used with the Commitment of Traders Report issued by the CFTC which shows action in the market place and allows you to top the worlds best traders.
How would you like to see what some of the smartest traders are doing with a track record of warning of every major top and bottom? Well you can, with this report and it’s FREE.
While it is used in the futures market it’s a great indicator for FX trend changes.
There are 3 groups of investors that are logged.
Commercials – smart money they own the currency and are hedging and know the long term fundamentals.
Big Speculators – Mostly large funds
(The above two groups under law have to report there positions)
Small Speculators – Everyone else.
What you need to do is watch when the commercials are buying or selling heavily and the other two groups are going the opposite way.
The commercials are hedging so only move on big spikes against their position, there not leveraged and only move when price extremes occur.
If you see a big rally and the commercials are selling, while the other two groups are buying and they are at an extreme position against each other – a trend change is at hand.
You can then look for clues too enter on your charts and get confirmation there.
People move markets not by science – but by greed and fear learn to sell extreme greed and buy extreme fear and you can catch every major trend change.
The two services above help you gauge sentiment and allow you to get market timing on your forex charts.
Forex trading is a game of odds and having the sentiment behind the chart movements is a huge advantage in seeing forex price action as it is and where it may go next.