Wednesday, May 27, 2020

Sentiment

Sentiment is the proportion of traders who are long v short. You are looking for proportions of greater than 60% long or less than 40% long.  The theory is that you would take a contrarian approach.  So which currency pairs involving the USD exhibit these characteristics?  Look at https://www.dailyfx.com/sentiment-report

First, look at the AUD/USD, which is about 37% long with 63% short.  This trades at about 0.66.  Most traders expect it to drop further, so the contrarian approach would be to BUY it (remember buy the dip), expecting it to go higher.

So if it drops below 0.659, that is a BUY signal.

Next, look at the GBP/USD, which is about 63% long with 37% short.  This trades at about 1.225.  Most traders expect it to rise, so the contratrian approach would be to SELL it (on a spike), expecting it to drop.

So if it goes above 1.226, that is a SELL signal.

This is a very simple theory that may or may not work.  Something to think about.

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Update: It is important to get sentiment from more than one source.  Here are some more:
https://www.forexfactory.com/trades
https://www.myfxbook.com/community/outlook
https://www.myfxbook.com/community/outlook/AUDUSD
https://www1.oanda.com/forex-trading/analysis/open-position-ratios
https://www.home.saxo/insights/tools/fx-open-positions/tool-details

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Update 2:
DO NOT DO THIS.  It doesn't work.  The sentiment only shows investors on that particular site, and it completely ignores the enormous banks.  The saxo site includes some of the big banks.

Taking a step back, the basic problem with Forex is that it is a zero-sum game.  For you to win, someone else has to lose.  Do you really think you are smarter than at least 50% of the players?

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