Mark Luke M_ McDonald

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What is sentiment analysis in forex and how reliable is it?

Sentiment analysis measures market mood using tools like the Commitment of Traders (COT) report, broker positioning data, or social media analysis. Institutions enhance it with NLP and big data feeds, quantifying bullish vs. bearish sentiment across sources. Retail traders often access sentiment indicators showing long/short ratios on broker platforms. Benefits: reveals crowd positioning, contrarian signals, and hidden consensus. Risks: lagging data, misleading sample sizes, and herd behavior that can persist longer than expected. Sentiment is not standalone but powerful when combined with technicals and fundamentals. For traders, sentiment analysis is like reading the market’s “psychology,” providing context to align or fade crowd bias.