Sentiment in the Forex Market: Indicators and Strategies to Profit from Crowd Behavior and Market Extremes

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fm JWBK195-Saettele June 3, 2008 16:35 Printer: Yet to come

Preface

A

s public interest in the FX market has skyrocketed, so too has the

amount of technical and fundamental research available to aspiring

traders. An area that has failed to receive the same amount of atten-

tion is often considered part of the technical approach: sentiment. After

the news releases are digested by floor traders, the fundamentals digested

by economists, and the latest comments from the central banker are dis-

sected, the market’s trend is still a product of underlying sentiment. That

is the premise of this book. Much (if not most) of the information fed to

retail traders is of little use when it comes to making money by trading.

Trading is hardly as simple as buying or selling, because an economic indi-

cator is good or bad. Similarly, the game is not as black or white as buying

or selling, because price is above or below a moving average.

For one, I hope to prove that traditional approaches such as the eco-

nomic indicator approach do not work. No consistent correlation exists

between the U.S. dollar and U.S. economic indicators, but conventional

wisdom says that the two move in lockstep. Why is this approach followed

so fervently if its foundation is rooted in falsities? The reason that mar-

kets move in identifiable patterns is probably the same reason that many

accept as gospel the conventional ...