Sentiment Indicators: Using IG Client Sentiment Market News

No representation or warranty is given as to the accuracy or completeness of the above information. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. Recent changes in sentiment warn that the current USD/CHF price trend may soon reverse higher despite the fact traders remain net-long.

The pair had been trending lower in the early months of 2019, and client sentiment as seen below was a good predictor of possible turning points. Clients were significantly net long at the lows of the downtrend, for example at $1.13 and then $1.125, and then short positions increased at the lower highs at $1.15 and $1.14. ig client sentiment 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. The typical school of thought for making trading decisions is using a combination of technical and fundamental analysis.

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Thereafter, traders can use technical analysis  to spot ideal entry and exit points for that market. This has been a volatile currency pair, with dramatic swings over the past few months. What stands out is that at the peak in early November 2018 clients were only around 35% net long (longs minus shorts). Clients had reduced their long positions and short positions had increased as the price rose from mid-October. Then, the sharp turnaround in the price, which began a steady downtrend, was accompanied by a steady rise in long positions, so that the net long figure rose to over 60%. Positioning is less net-short than yesterday but more net-short from last week.

While these methodologies are helpful, sentiment analysis is often overlooked yet could be a valuable addition. To understand why this type of indicator can be powerful, one needs to grasp the sentiment concept. In any tradable financial market, the two most common strands of analysis are technical and fundamental.

Market morning update: US dollar, Straits Times Index, GBP/USD

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.

• No representation or warranty is given as to the accuracy or completeness of this information.
• As the red line rose (suggesting more sellers), the trend continued its ascension.
• Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bearish contrarian trading bias.
• It is widely considered that readings greater than +2 and less than -2, indicate a meaningful bias among retail traders as this translates in to 66.6% of traders net-long/short.
• Simply put, retail traders contribute only a certain percentage of market input so naturally other factors will have influence on the respective market.

Instead we can look at the IG Client Sentiment index as giving us a directional bias – it suggests whether you should look for opportunities to buy or to sell. 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 (IGCS) is a tool that traders can use in conjunction with a broader technical and/or fundamental strategy. IGCS incorporates retail trader positioning (long and short) to formulate a sentiment bias. This is represented in percentage form (see image below) which aids traders in identifying market imbalances which could lead to possible opportunities. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Wall Street prices may continue to fall.

RSI divergence with a trend line break

In the image below (figure 6), IG describes the changes between buyers and sellers on EURJPY. From the beginning I didn’t trust the EA robot FOREX V PORTFOLIO v.11 pro 14 because I had other trades than shown in the video on the website. After a month on two demo accounts with a deposit of 2000 USD, I must say that the EA works very well!!!

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Any sentiment indicator is a graphic or numeric depiction of the percentage of traders currently in long (buy) positions against those in short (sell) ones. In IG’s case, the broker provides a general summary and a more detailed report on the net long and net short positions of the relevant markets (figure 3). IG Client Sentiment is viewedas ‘fading the crowd’ or going the opposite direction of retail traders.

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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. The above examples should help to illustrate how to treat client sentiment. It is not enough merely to ‘do the opposite’ but look at the changes in sentiment and the direction of travel for sentiment as well as the price. For short-term traders, identifying these relative extremes in price versus sentiment can be a useful addition to a trading strategy. Alongside technical and fundamental analysis, IG’s sentiment data can be a useful additional tool for a trader, if they know how to read the changes in positioning. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Silver-bearish contrarian trading bias.

• Since traders had become increasingly more net-short, it’s no surprise to see this line advancing upwards.
• Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
• Clients were significantly net long at the lows of the downtrend, for example at $1.13 and then $1.125, and then short positions increased at the lower highs at $1.15 and $1.14.

Clients were almost 70% net long at the lows in December, a very high level for indices which usually see low net long readings (ie net short). Sentiment returned to ‘normal’ from January onwards, with net long positions falling below 30%, but the small sell-off in early February saw this spike towards 35%. In the 1HR USDCAD chart below (figure 8 and 9), we see the market broke the trendline and then reverted to test the ‘back side’ of it.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/JPY prices may continue to rise. Sentiment may improve technical analysis and enable more consistent trading, particularly for those looking to trade against the consensus. Find out more with our guide to trading with IG client sentiment data, as well as how to approach sentiment analysis in forex trading.