Forex Candlestick Tutorial — Part 10 — Investors Sentiment of Emotions and Decision Making

This is part 10 of the tutorial. In this video, you will learn about investors’ sentiment of emotions and decision making.

The same equation is also true with regard to the general market decision. If job reports are strong, sales are increasing, earning season is promising positive returns, the overall investors’ perception of the state of the market is optimistic. As a result, they will buy and invest driving the prices up. On the other hand, if their perception is more pessimistic, because of poor job reports and other weak economic signs, investors would be more inclined to sell driving the prices down. The investors’ perception and their optimistic or a pessimistic view of market conditions, stock or any other trading security, is referred to as investors’ sentiment of emotions and decision making. Investors’ sentiment and more specifically the emotion of fear and greed are the most important elements of the market equation.

Supply and demand are two elements of the market equation that can be analyzed using many indicators available today — levels of support and resistance, time and sale, Level 2, MACD, RSI and many more. What indicators or price of technology are we going to use to determine the dominating investors’ sentiment of emotions and decision making? The answer is candlestick patterns. The Doji, Bullish Harami, Bullish Engulfing, etc. are just a few examples of powerful Japanese candlestick patterns. Homma, the father of Japanese candlesticks discovered the importance of emotions and their influence in investors’ decision making. He knew that the movement of price action was not only the reflection of supply and demand, but especially that the price was greatly influenced by the emotions of fear and greed that every trader experiences.

Homma understood that when emotions are part of the trading equation, the difference between the price that people are willing to pay and the true value of what has been sold could be quite significant. He studied the market, identified the effects that emotions had on price actions and develop candlestick analysis.

The charts that you see are the same monthly Apple charts that we discussed in the previous video. The chart on the left is a bar chart. The chart on the right is a candlestick chart. If you knew candlesticks you would have noticed the appearance in October of a shooting star candlestick, a bearish reversal pattern indicating that the market or stock trend is about to change direction.

In November, a big red candle appeared indicating that the market sentiment in regard to Apple has turned pessimistic (or bearish). As the first candle was forming, you would have had plenty of time to get out of Apple and hopefully have made a decent profit. In July, after several months of a downtrend, you would have also noticed the appearance of a green candle, forming a Bullish Harami signal, a bullish reversal pattern indicating that the market is about to change direction. Japanese candlesticks show exactly when investors’ sentiment of emotions and decision making have changed and give us a very clear and distinct signal of when to get into a trade and when to get out of a trade.

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Post tags: candlestick, Investor’s sentiment, tutorial

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