How to use IG client sentiment IG International

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Oil – US Crude prices may continue to rise. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/JPY prices may continue to rise. To their detriment, retail traders tend to focus more on catching reversals in strong trending markets than trading ranges. Therefore, when trading on sentiment, traders will find more reliable (contrarian) signals in strong trending markets. IG Client Sentiment is viewedas ‘fading the crowd’ or going 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.

Therefore, charting the data and interpreting the levels shown is an easier way to gauge sentiment via the COT reports. According to a recent report by the Bank for International Settlements (BIS), there are, on average, almost $6 trillion of forex transactions on a daily basis. With so many participants—most of whom are trading for speculative reasons—gaining an edge in the forex market is crucial.

The lower section of the diagram simply shows the actual number of short and long traders overtime. Since traders had become more and more net-long, it’s no surprise to see the blue line well above the red line for long periods. With markets skeptical of Bank of Canada’s ability to deliver additional tightening, the Fed’s normalization cycle will be more relevant for USD/CAD in the near term.

Sentiment Indicators: Using IG Client Sentiment

Traders can see the percentage of IG’s clients on particular pairs who have gone long or short. Despite the favorable outcome in today’s data, Canadian short-term yields did not reprice materially higher. This suggests that the report is unlikely to exert a substantial influence on the Bank of Canada’s future decisions. Such an outcome places the focus on the 20-day moving average, which can function as support, maintaining the upside technical focus. Otherwise, further losses would place the focus on rising support from March.

• IG’s client sentiment indicator is still, by far, one of the most frequently used and has proven to provide some accurate data translatable to real market movements.
• While the FOMC has indicated it will “proceed carefully”, the situation could change if U.S. price pressures remain elevated.
• One interesting feature with most sentiment indicators is their contrarian nature.
• To make the analysis easier, DailyFX provides a comprehensive report on major markets, showing IG sentiment overlaid on price.

Obviously this would need to be tested against different markets but it is definitely a useful tool when looking for trading opportunities. The data is only gathered from clients of that broker, and therefore provides a microcosmic view of market sentiment. The sentiment reading published by one broker may or may not be similar to the numbers published by other brokers. The forex market is “over-the-counter” with independent brokers and traders all over the world creating a non-centralized marketplace.

The Reserve Bank of New Zealand: A Trader’s Guide

The concept of sentiment is a relatively novel method of determining directional biases in the markets by seeing how traders feel. When participants feel optimistic, you form a bullish bias; when they feel pessimistic, you form a bearish bias. Meanwhile, downside bets have increased by 3.72% and 7.4% compared to yesterday and last week, respectively. With that in mind, overall positioning and recent changes produce a stronger bullish contrarian trading bias. This example shows that client sentiment data can be used to provide trading signals, especially at “turning points” in sentiment.

For example, the EUR/USD chart below shows the projectible nature that can occur with IGCS. The highlighted are on the chart exhibits an increase in net short positions from retail traders which coincided with a rise in price action (EUR appreciation) on the price chart itself. Simply put, retail traders contribute only a certain percentage of market input so naturally other factors will have influence on the respective market. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/JPY-bullish contrarian trading bias. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil – US Crude-bullish contrarian trading bias.

EUR/CHF

Accepts no responsibility for any use that may be made of these comments and for any consequences that result. IGCS shows retail traders are currently neither NET LONG on EUR/USD, with 67% of traders currently holding long positions (as of this writing). Download the latest sentiment guide (below) to see how daily and weekly positional changes affect EUR/USD sentiment and outlook.

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%. 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.

Currently, money markets (refer to table below) are divided between a rate hike or pause for next week’s announcement. Although pricing is skewed towards a rate pause, this could be the last opportunity for the ECB to hike considering the deteriorating economic conditions. The decision could go either way in my view which leaves the door open for bulls and bears next week. The euro is back on the defensive this Friday after relatively dovish Fed comments yesterday overshadowed the euro area GDP miss that highlighting growth concerns within the region. Being the largest economy in the euro area, German pessimism will weigh heavily on the European Central Bank (ECB) and their interest rate cycle as stagflation and recessionary fears gain traction.

SENTIMENT INDICATORS: USING IG CLIENT SENTIMENT

72% of retail client accounts lose money when trading CFDs, with this investment provider. 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. This information has been prepared by IG, a trading name of IG Markets Limited. We want to clarify that IG International does not have an official Line account at this time.

• We need to emphasize that past performance is not indicative of future results, but going against ‘the crowd’ in this instance could have produced approximately 600 points in gains.
• Over the time period shown, when large speculators were short about 200,000 contracts, at least a short-term rally soon followed.
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall.
• IG suggests price may continue to fall, concluding bearish sentiment instead.

It is widely considered that readings greater than 2, indicate a meaningful bias among retail traders as this translates to at least 66.6% of traders net-long/short. 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.

Trading with IG Client Sentiment Data

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. This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information.

Traders should be drawn to extreme levels (very short or very long) when analyzing sentiment, as this is where the tool provides clearer signals. As can be seen in the graphic below, there is a relatively extreme figure of 78% for NZD/USD. The figure forex ig client sentiment is written in blue (representing longs) and the horizontal bar also depicts the sentiment imbalance in favor of the longs. We’ll note that there are three percentage markers different to the others in the above chart—at 33.3%, 50%, and 66.6%.

Top Sentiment Fluctuation

It’s human nature to try and look for relative bargains, and thus we might look at a market which has fallen sharply in value and buy. Likewise we often look to sell into a market where price has risen, and quickly we see why most traders tend to go against the prevailing trend. While the IG’s sentiment index https://g-markets.net/ is free of charge and a lot easier to comprehend than other indicators of this nature, it only provides a microcosmic view of the entire forex market. Yet, unlike a tool such as the Commitment of Traders, report data updates more frequently, allowing users to react quickly to any sudden shifts in sentiment.