Earlier,
we said that price should theoretically accurately reflect all available market
information. Unfortunately for us traders, it isn't that simple. The markets do
not simply reflect all the information out there because traders will all just
act the same way. Of course, that isn't how things work.
Each
trader has his own opinion or explanation of why the market is acting the way
they do. The market is just like Facebook - it's a complex network made up of
individuals who want to spam our news feeds.
Kidding aside, the market basically represents what all traders -
you, Pipcrawler, Celine
from the donut shop - feel about the market. Each trader's thoughts and
opinions, which are expressed through whatever position they take, helps form
the overall sentiment of the market.
The
problem is that as traders, no matter how strongly you feel about a certain
trade, you can't move the markets in your favor (unless you're one of the GSs -
George Soros or Goldman Sachs!). Even if you truly believe that the dollar is
going to go up, but everyone else is bearish on it, there's nothing much you can
do about it.
As a trader, you have to take all this into consideration. It's up
to you to gauge how the market is feeling, whether it is bullish or bearish. Ultimately, it's also up to you to find out how you want to
incorporate market sentiment into your trading strategy. If you choose to
simply ignore market sentiment, that's your choice. But hey, we're telling you
now, it's your loss!
Being
able to gauge market sentiment can be an important tool in your toolbox. Later
on in school, we'll teach you how to analyze market sentiment and use it to
your advantage like Jedi mind tricks.
