Since traders had become increasingly net-short, it’s no surprise to see the red line well above the blue line for long periods. ​Being aware of extreme sentiment levels is also important, as these often precede market reversals. For share CFDs you trade at the underlying market price and pay a small commission. Moreover, we’ve drawn a trend line and plotted a 200-day exponential moving average in the chart below. Similar to trend changes, we could consider looking at the index when the extremes change. Let us assume, according to our technical analysis, a particular market is at a critical resistance level on an uptrend.

Ig Client Sentiment

The data suggests about 61% of traders are presently long while the rest are short. The natural assumption would presume the overall sentiment is bullish, but this works in reverse as explained. For instance, if 57% of clients are long in a market while 43% are short, the natural inclination would be to assume bullish sentiment because of the numerical difference. There’s a belief in forex that most retail investors trade against the trend by picking tops and bottoms. Experts believe the ‘smart money’ or institutional traders see this event and trade in the opposite direction.

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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. Being able to gauge market sentiment aka sentiment analysis can be an important tool in your toolbox. Depending on where you find statistics, between 70-80% of retail traders lose money.

1. Generally, when the ratio levels is greater than +/2 (negative for majority net-short and positive for net-long positions), the short-term trading signal generated would be in the opposite direction.
2. One of the key things is looking for extremes between the two figures; the larger, the better.
3. Before implementing a sentiment trading strategy, it’s useful to understand why client sentiment is regarded as a contrarian signal.
4. The sentiment to a certain degree determines the demand and supply for a particular currency, stock, or commodity.
5. There is a “commission” charge that comes into play when one is trading CFDs, but it is added to either side of the market spread, and there is an actual commission for every share-CFD trade.

Live prices on most popular markets

This section is critical and will provide practical and actionable tips for implementing this indicator. Depending on the trader, this tool can be the first or last point of reference. An immediate distinction of sentiment is viewing it as a contrarian indicator, which is the most important yet unusual.

Hence, this guide will cover the index, how it works, how traders employ it (with an example), and the main benefits and drawbacks to consider. After realizing that most traders are short the S&P 500, one could reasonably assume that this must be the correct trade to place. At this stage, we know which market to trade and know the direction to trade it but there are further factors to consider and these are explored in the remainder of the article. We recommend our BEST ROBOT FOREXVPORTFOLIO v11, which is already being used by traders all over the world, successfully making unlimited profits over and over again. 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!!!

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUD/USD-bearish contrarian trading bias. For example, if sterling had been trading between $1.00 and $1.10 over a month-long period and then began rising significantly above $1.10, it could suggest greed has entered the market as positive sentiment snowballs. Of course, IG is not the only broker publishing summaries of their client’s positions in the markets, though only a handful does.

1. Understanding and effectively trading market sentiment can give investors an edge in their decision-making process.
2. This is presented in either a percentage form or a ratio form (dividing the larger percentage by the lower percentage).
3. Such large changes could indicate a reversal in overall sentiment and the market itself.
4. This tool covers some of the most popular forex markets like EURUSD, EURJPY, AUDUSD, USDJPY, and other well-known non-forex markets such as Bitcoin, Ethereum, US crude oil, and the S&P 500.
5. 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.
6. Please ensure you fully understand the risks and take care to manage your exposure.

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. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. Most traders are well-inclined with technical and fundamental analysis as the two strands of speculating in currencies.

How to interpret the IG Client Sentiment Indicator

While this may be true in some cases, IG’s index may conclude the trading bias as ‘mixed’ based on changes between the longs and shorts from the last day. These findings reflect the magnitude to which traders in that market/s feel optimistic or pessimistic, i.e., their sentiment. One of the good qualities of IG’s sentiment tool is they provide a concluded directional bias which also accounts for changes to the previous day. The report produces a price chart for each market with sentiment superimposed on the same chart. It also includes a paragraph showing all relevant sentiment numbers before providing ether a bullish, mixed or bearish trading bias. Using client sentiment as the starting point however, can be extremely useful as it can inform which market to trade and in what direction, before any other analysis is even done.

An extreme reading on the Commitment of Traders report doesn’t mean the price of the asset will immediately reverse. Market sentiment represents the mood of financial markets and the general feeling among traders, whether they trade foreign exchange, the stock market or anything else. Understanding sentiment allows you to judge whether a market is feeling optimistic or pessimistic about the future of prices of a security, such as a stock or currency, for example. For traders looking for the most effective technical indicators, it is important ig client sentiment to consider the objectives of the trading strategy as well as the current market condition. For individuals trading individual stocks, it is often beneficial to apply indicators to the stock index in which that share belongs to get a holistic view of the larger market as a whole.

An RSI divergence occurred, which would have been the second reversal trigger for this position. At the same time, IG client sentiment data showed an increasing number of buyers who might have believed the trend was still to the upside. Yet, as with any tool, traders should use the IG Client Sentiment Indicator as a confirmation layer combined with other setup triggers to form a trading idea.

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. 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 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.

In short, when a large percentage of people are selling, the sentiment is actually bullish (and vice versa). This strange phenomenon boils down to the perceived activities between retail and institutional traders. Some ETPs carry additional risks depending on how they’re structured, investors should ensure they familiarise themselves with the differences before investing. The information in this site does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of or solicitation for transaction in any financial instrument. IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority. Open a free, no-risk demo account to stay on top of index movement and important events.

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. Most CFD and spread bet traders tend to fade momentum – selling in an upward-trending market and buying into a downward-trending market. 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. The client sentiment index or report is a free tool provided by IG, one of the oldest CFD brokers worldwide (established in 1974).