Christopher Robert J_ Perez#91

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How do sentiment indicators capture forex market psychology?

Sentiment indicators (COT reports, retail positioning, sentiment indexes) measure crowd psychology. Institutions monitor sentiment extremes to anticipate reversals. Retail traders often misinterpret sentiment—assuming majority longs mean trend continuation, when it often signals exhaustion. Benefits: insights into positioning and psychology. Risks: lagging nature and overreliance. Example: heavy retail long positions in EUR/USD often precede downturns. Sentiment indicators highlight that forex is as much about human emotion as fundamentals. Understanding crowd psychology creates an edge—markets reflect collective fear and greed.