Crowds move markets and at major market turning points, the crowds are almost always wrong. When crowd sentiment is overwhelmingly positive or overwhelmingly negative it's a signal that the trend is exhausted and the market is ready to move powerfully in the opposite direction. Sentiment has long been a tool used by equity, futures, and options traders. In Sentiment in the Forex Market, FXCM analyst Jaime Saettele applies sentiment analysis to the currency market, using both traditional and new sentiment indicators, including: Commitment of Traders reports; time cycles; pivot points; oscillators; and Fibonacci time and price ratios. He also explains how to interpret news coverage of the markets to get a sense of when participants have become overly bullish or bearish. Saettele points out that several famous traders such as George Soros and Robert Prechter made huge profits by identifying shifts in crowd sentiment at major market turning points. Many individual traders lose money in the currency market, Saettele asserts, because they are too short-term oriented and trade impulsively.
He believes retail traders would be much more successful if they adopted a longer-term, contrarian approach, utilizing sentiment indicators to position themselves at the beginning points of major trends.
JAMIE SAETTELE is the Technical Currency strategist at Forex Capital Markets LLC (FXCM) in New York. He has contributed to Technical Analysis of Stocks and Commodities magazine, SFO magazine, Futures magazine, and Investopedia.com. His technical strategy is published daily at DailyFX.com. A graduate of Bucknell University, Saettele is an active currency trader employing both discretionary and systematic approaches to the foreign exchange market.
Preface. Acknowledgments. Chapter 1. The Argument for a Sentiment-Based Approach. What Is Fundamental? Top-Down Approach. Reminiscences of a Stock Operator. Chapter 2. The Problem with Fundamental Analysis. How the Brain Works. The Myth of Economic Indicators. Nonfarm Payrolls. Gross Domestic Product. Trade Balance. Treasury International Capital. Producer and Consumer Price Indexes. Conclusion. Chapter 3. The Power of Magazine Covers. The Death of Equities-August 13, 1979. Magazine Covers in the Currency Market. Conclusion. Chapter 4. Using News Headlines to Generate Signals. Where to Look. Conclusion. Chapter 5. Sentiment Indicators. Commitments of Traders Reports. History of U.S. Futures Trading. Currency Futures History. Reading the COT Report. Using COT Data with Spot FX Price Charts. Understanding the Data. Watching the Commercials. Watching the Speculators. Commercial and Speculators Give the Same Signal. The Approach. Open Interest. Other Sentiment Indicators. Conclusion. Chapter 6. The Power of Technical Indicators. What Is Technical Analysis? Keep It Simple. What Time Frames to Use? Support and Resistance. Determining a Bias. Fancy Momentum Indicators and Overbought/Oversold. When to Get Out. Chapter 7. Explanation of Elliott Wave and Fibonacci. Who Was Elliott? Fibonacci: The Mathematical Foundation. Ratios. Specific Setups. Some Differences between Stocks and FX in Elliott. Building Up from Lower Time Frames. Multiyear Forecast for the US Dollar. Multiyear Forecast for the USDJPY. Conclusion. Chapter 8. Putting It All Together. Why Most Traders Lose. Developing a Process. In Conclusion. Notes. Index.