Understanding the ForexGPT Sentiment Indicator: A Comprehensive Guide
The ForexGPT Sentiment Indicator is a tool designed to assist traders in analyzing market sentiment across different time frames and assets. It provides a sentiment score ranging from -100 to +100, which attempts to capture the current market mood as bullish, bearish, or neutral. Developed by ForexGPT, this indicator serves as a way to quantify sentiment based on technical data and is intended to support analysis rather than provide investment recommendations.
Warning: it should not be overly relied upon for making decisions, but rather a tool in your technical analysis arsenal that can help in assessing market conditions.
This guide explains how the sentiment indicator works, what it measures, and how it can be incorporated into market analysis.
What is Market Sentiment?
Market sentiment represents the collective attitude of traders and investors toward a specific asset or market. It helps interpret whether participants are optimistic (bullish), pessimistic (bearish), or uncertain (neutral).
In the following daily candlestick chart of Bitcoin versus the US Dollar, the Sentiment Score is shown as 81 and Strong Bullish denoted with darker green:
The ForexGPT Sentiment Indicator translates market sentiment into a single numerical score based on a set of technical inputs, offering traders a consistent way to analyze shifts in sentiment over time.
How the Sentiment Score is Calculated
The sentiment score uses price data and technical benchmarks to assess market conditions. It evaluates the price’s position relative to:
- Bollinger Bands
Bollinger Bands reflect price volatility and define upper, middle, and lower ranges. The sentiment score adjusts based on whether the price is above, below, or within these bands. - Simple Moving Averages (SMAs)
SMAs smooth out price fluctuations over specific periods. The indicator takes into account whether the current price is above or below key SMAs, such as 14-day, 50-day, and 100-day averages. - Normalization
To ensure consistency across different markets and time frames, the sentiment score is normalized to a range between -100 and +100.
How to Interpret the Sentiment Score
The sentiment score provides an overview of the market mood, categorized into distinct ranges:
| Score Range | Sentiment | Color |
|---|
| +75 to +100 | Strong Bullish | Dark Green 🟩 |
| +50 to +75 | Bullish | Green 🟩 |
| +25 to +50 | Medium Bullish | Light Green 🟩 |
| +10 to +25 | Slightly Bullish | Yellow-Green 🟨 |
| -10 to +10 | Neutral | Yellow 🟨 |
| -25 to -11 | Slightly Bearish | Orange-Yellow 🟧 |
| -50 to -26 | Medium Bearish | Orange 🟧 |
| -75 to -51 | Bearish | Dark Orange 🟥 |
| -100 to -76 | Strong Bearish | Dark Red 🟥 |
Example random (hypothetical) Sentiment scores and respective colors and values
In the following visualization, we can see the Sentiment score changing in realtime, along with the respective outlook and color-coded levels.
Practical Uses of the Sentiment Indicator
The ForexGPT Sentiment Indicator can be applied in various ways to analyze markets:
- Monitor Market Trends
- A bullish sentiment score suggests prices are gaining strength, while a bearish score indicates downward momentum. Observing these trends may help traders understand the market’s overall direction.
- Assess Market Extremes
- Scores near the maximum or minimum range may suggest overbought or oversold conditions, though these should be considered alongside other forms of analysis.
- Identify Neutral Markets
- Neutral scores may indicate periods of consolidation or indecision, which can precede significant market movements.
- Compare Sentiment Across Assets
- The normalized score allows for comparisons across different assets and time frames, providing a broader view of market conditions.
[New] Sentiment Score Indicator for TradingView
ForexGPT is pleased to release a free version of the ForexGPT Sentiment Score Indicator available to the TradingView community: https://www.tradingview.com/script/O3HvuUGe-Sentiment-Score-Indicator-V1-1/
Below is an example of the indicator used on a 1-second candlestick chart of BTC/USD.
Follow ForexGPT on TradingView: https://www.tradingview.com/u/forexGPT_LLC
Note: the values of the ForexGPT Sentiment Score indicator on TradingView can vary slightly from the values of the ForexGPT Sentiment Score in our web app.
Strengths and Considerations
The sentiment indicator offers a structured way to interpret market data, which can enhance traders’ understanding of sentiment trends. However, like any analysis tool, it has its limitations:
- Complementary Tool
The sentiment indicator is most effective when used alongside other analytical methods, such as technical and fundamental analysis. It is not intended to be used as a sole decision-making tool. - Market Context Matters
Changes in sentiment should be considered within the context of broader market conditions, such as news events or macroeconomic factors.
Best Practices for Using the Sentiment Indicator
- Use in Combination
Pair the sentiment score with other indicators or strategies to strengthen your overall market analysis. - Avoid Over-Reliance
The sentiment indicator provides insights into market conditions but does not predict future price movements. Traders should use it as part of a diversified approach. - Focus on Trends Over Noise
Look for sustained shifts in sentiment rather than reacting to minor fluctuations.
Conclusion
The ForexGPT Sentiment Indicator helps translate complex market data into a structured score for sentiment analysis. It offers traders an additional perspective to consider when evaluating market trends and conditions. As with any tool, it is important to use the indicator as part of a broader, well-rounded approach to market analysis.