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

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178 SENTIMENT IN THE FOREX MARKET

stocks means that the trend is always up at the largest degree of trend. Of

course, history tells us that humans do undergo enormous setbacks from

time to time (these would be the corrections in waves 2 and 4), but the set-

backs are still reactionary in nature and eventually give way to progress.

Examples include the South Sea bubble in the 1720s and the Great Depres-

sion in the 1930s (and maybe the great asset bubble that is coming to an

end right now in 2007).

So, while the stock market is a barometer of human progress in the

long term, what do currencies represent in the long term? First of all, what

is currency? Many people mistake currency for money, or something that

is backed by something tangible. If you approached the U.S. Treasury and

asked to exchange your dollars for something tangible, you would get noth-

ing. As Prechter notes in Conquer the Crash, “The dollar is ‘backed’ primar-

ily by government bonds, which are promises to pay dollars. So today, the

dollar is a promise backed by a promise to pay an identical promise. If the

Treasury will not give you anything tangible for your dollar, then the dol-

lar is a promise to pay nothing.”

14

If currency is not really anything in the

first place, then determining what currency movements represent is quite

difficult. ...