The combination of a new high for the year and bearish client sentiment suggested a turning point was at hand. While downside has been limited so far, it was a sign that the steady rally from the January lows had come to an end for the time being. However, when the price began to rise in early January, long positions decreased and short positions rose. While the attention of many is drawn to what happened as the price changed direction, the interesting element is actually the wide divergence on the chart between price and sentiment.
SENTIMENT INDICATORS
We’ve put all the important forex markets on a single page so it’s easy to see, at a glance, how traders feel about each of them, which instruments feel bullish and which feel bearish. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. Similarly, we saw net long positions decline to below 30% in March of this year when the price hit highs around 148.
EUR/USD sentiment — 71% short
Short-term investors like scalpers and day traders are unlikely to benefit from this tool. Although anyone can view changes daily, it usually takes time to see the actual effect of these results. When more traders were going long, the market kept falling because of the perceived contrarian view.
Live prices on most popular markets
The tool is a graphical representation of client positioning or a percentage of how many clients are net-long (buying) versus net short (selling) on a particular pair. The primary avenue for determining sentiment is using an indicator showing how many traders are long versus how many are short on a specific pair. One interesting feature with most sentiment indicators is their contrarian nature.
USD/CAD sentiment — 65% long
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how this product works, and whether you can afford to take the high risk of losing your money. Trading forex markets using client sentiment requires an account with a forex provider like IG.
- One powerful method of using this indicator is to confirm the extent of an existing trend.
- Such large changes could indicate a reversal in overall sentiment and the market itself.
- Meanwhile, the daily change in net-short positions is -20% with a weekly change of -39%, which means that clients are further net-short relative to the previous week.
- For example, the EUR/USD chart below shows the projectible nature that can occur with IGCS.
- The combination of a new high for the year and bearish client sentiment suggested a turning point was at hand.
Trader sentiment can be used to determine positioning across a range of assets. Our forex market sentiment indicator shows the percentage of traders going long and short, how sentiment is shifting, and whether the overall signal is bullish, bearish or mixed. The daily USD/CAD chart, highlights the way in which technical indicators and price action may be used to confirm potential signals provided by IGCS before identifying potential entry and exit points.
They also provide the brief results of the data, changes from the previous days and weeks, and what the eventual directional bias should be (figure 4). One of the key things is looking for extremes between the two figures; the larger, the better. The two arrows which trace the price direction and the blue line at the bottom (representing the number of net-long clients) show the disparity. You can help develop your forex trading strategies using resources like IG’s Trading Academy.
In our next guide we will take a closer look at more detailed examples of how we might use the IG Client Sentiment index in our trading. IG Client Sentiment is viewed as ‘fading the crowd’ or going in the opposite direction of retail traders. All of this is made possible with IG’s accurate, real-time data on the most frequently traded markets – which can be used in any sentiment trading strategy. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Silver prices may continue to fall. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZD/USD prices may continue to fall.
Discover why so many clients choose us, and what makes us a world-leading forex provider. Changes to the IG Client Sentiment Indicator data are updated once every day, typically between 09h00 to 11h00 UTC. IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority. Discover why so many clients choose us, and what makes us a world-leading provider of CFDs. This occurrence is particularly prevalent when the market has been moving in one direction for an extended period.
Simply put, retail traders contribute only a certain percentage of market input so naturally other factors will have influence on the respective market. For example, the EUR/USD chart below shows the projectible nature that can occur with IGCS. The use of IGCS as a technical indicator can allow traders to confirm or refute signals produced by their wider trading strategy. Both fundamental and other technical techniques are used to gauge trends, ranges, potential reversals etc. so incorporating IGCS provides another layer of data to help verify a hypothesis.
While these methodologies are helpful, sentiment analysis is often overlooked yet could be a valuable addition. Also, retail traders often buy right at market tops or sell right at market forex ig client sentiment bottoms, without realizing this could be in strong support or resistance zones. Since these areas feel ‘safe,’ this can create another trap for the ‘big boys’ to take price the other way.
IG mentioned in their report for EURJPY that the number of net-short clients was 37.39% higher than the last week, while the number of net-long clients was 37.17% lower within the same period. Ultimately, to confirm the likelihood of a trend continuing, one needs to look for extremes between net long and net short positions. Since August 2020, we can see the red line (representing net short) was wide away from the blue line (representing net long).
In subsequent IGCS articles in this market sentiment sub-module, we will go through the implementation and flexibility of this tool in varying trading circumstances. We have shown how sentiment/IGCS can be a unique, proprietary and potentially helpful addition to a trader’s approach. In subsequent IGCS articles in this market sentiment sub-module, we will go through the implementation and flexibility of this tool in varying trading circumstances. All trading opportunity instruments represent markets that currently have a contrarian indicator, so you can consider them straight away. This article will discuss IGCS as a contrarian indicator, illustrating how to read signal potential from this data.