Hello traders,
Using data from Myfxbook we’ve created a Market Sentiment Indicator or Community Outlook as named by Myfxbook. Data shows what percentage of the traders hold long positions on a currency pair and what percentage of the traders hold short positions. Some more additional data is provided: long and short volume, total number of long and short trades, average short and long price, percentage of demo and real accounts.
DailyFX release similar data in their SSI (speculative sentiment index) indicator but they only interpret the data from their FXCM clients while Myfxbook collects data from their communiy and includes various brokers. That’s why we think its data is more representative though the two indicators show similar numbers.
So how do we read the indicator’s data?
It is thought that if The Market Sentiment Indicator shows more traders are long on a certain pair then the price might go further down. And if most traders are short, the price might continue making new highs. That looks like doing opposite of what the indicator shows. It is not that you should aways go against the crowd. The idea is to look a bit forward. Let’s look at the following example:
Market Sentiment Indicator shows that 58% of the traders are long and 41% of the traders are short. That means that in the future a large volume of long orders will be eventually closed. This will create a sell pressure and the supply of EUR would be higher than the demand that created by closing the 41% short positions. That’s why it is considered that the price of the EUR/USD is likely to continue further down.
The Market Sentiment Indicator is a leading indicator. It’s a great tool used to predict the price movements compared to standard technical indicators, which rely on historical data only. Indicator’s data is updated every one hour.
Doughboy
Gloriana