Does The Trading Price Represent Sentiment?

Originally posted at forexfactory on March 15, 2011:

It’s great that you read the information and try to interpret it in your own unique way. People need to try to figure it out for themselves and see what works and what doesn’t, and what needs tweaking etc.

Normally I hibernate a little bit after a long post, but I will post a small response.

Price at the moment does not necessarily equal sentiment at the moment. There are many times that price on an intra day basis can deviate from the sentiment. That could signal a potential trade opportunity, or it could not signal anything at all.

For example sentiment might be bullish, but price drops a little bit and hits a few sell stop orders and deviates from the bullish sentiment. If you had the mindset that “Price at the moment = sentiment at the moment” then how would you reconcile that? Did the sentiment shift to being bearish from bullish? Or is it a mispricing that you can capitalize on?

The current market price can sometimes signal a temporary, very temporary agreement in sentiment. Or other times it can be a mispricing, a huge mispricing, but certain market participants have not figured it out yet, but they might over the coming minutes, hours or days.

You can identify an event. I call it more of a scenario that plays out. It could be news, or it could be a whole host of other reasons.

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