Sentiment research seems like a foreign and non-essential concept in currencies but has existed for as long as technical and fundamental studies. We have shown how sentiment/IGCS can be a unique, proprietary and potentially helpful addition to a trader’s approach. In subsequent IGCS articles in this market sentiment sub-module, we will go through the implementation and flexibility of this tool in varying trading circumstances. Being aware of extreme sentiment levels is also important, as these often precede market reversals.

1. Generally speaking, the term market sentiment refers to the state of mind of the market during the current trading session.
2. The main reason this sentiment indicator is regarded as contrarian stems from the objectives of retail and institutional traders.
3. Most CFD and spread bet traders tend to fade momentum – selling in an upward-trending market and buying into a downward-trending market.
4. As we already know, before opening a trade, you must analyze the current sentiment of the market.
5. It allows the trader to analyze this information through price action, indicators and patterns to guide and report on future trends before entering a trade.
6. 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).

We can further see the gap between the blue line and price, hence why the sentiment is still bearish. This indicator is best used for confirming a trend and the likelihood of its continuation. Although IG claims to have just under a quarter of a million clients, despite being a fraction of all market participants, plenty of examples reflect strong correlations between the tool and what happens on our charts. Whether new or advanced, every trader has heard of technical and fundamental analysis, but very few have heard about the third type, sentiment.

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Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/CHF-bearish contrarian trading bias. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/CAD-bearish contrarian trading bias. 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.

A clear example would be to estimate how many traders are bulls (holding long positions) and how many are bears (holding short positions). With this information, you can avoid trading against the probable direction of the market. The top section of the diagram shows how price has evolved (black and green candles) and the blue/red sentiment line shows when traders are net long/ net short. If there is a large distance between the sentiment line and the price, this can be considered as a signal to trade in the direction of the trend.

Then you have to decide how you want to incorporate your perception of market sentiment into your trading strategy. Each trader has his or her own opinion of why the market is acting the way it does and whether to trade in the same direction of the market or against it. To effectively trade market sentiment, it’s crucial to use these sentiment indicators alongside technical and fundamental analysis. Traders should look for divergences between sentiment and price action, as these can often signal potential reversals.

Market sentiment represents the overall attitude of investors toward a particular security or financial market. It’s a powerful tool that can help traders capitalise on changing market directions. Understanding and effectively trading market sentiment can give investors an edge in their decision-making process. ​Market sentiment represents the overall attitude of investors toward a particular security or financial market.

Plan your trading

Traders should still look to utilize strong risk management in their trades, even with the assistance of IG CS. While IG Client Sentiment is a useful tool, it doesn’t mean it’s perfectly predictive. Traders should still look to utilise strong risk management in their trades, even with the assistance of IG CS. Discover why so many clients choose us, and what makes us a world-leading provider of CFDs. ​Recognising when fear or greed has taken over can help identify market turning points, providing savvy traders with opportunities to capitalise on market inefficiencies. 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 want to clarify that IG International does not have an official Line account at this time. Therefore, any accounts claiming to represent IG International on Line are unauthorized and should be considered as fake. 72% of retail client accounts lose money when trading CFDs, with this investment provider. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. The risks of loss from investing in CFDs can be ig client sentiment substantial and the value of your investments may fluctuate. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

1. The value of shares, ETFs and ETCs bought through an IG share trading account can fall as well as rise, which could mean getting back less than you originally put in.
2. IG’s report updates once daily, and the broker provides client positioning data for a few of the most popular forex markets, crude oil, gold, silver, and a few indices.
3. An extreme reading on the Commitment of Traders report doesn’t mean the price of the asset will immediately reverse.
4. An immediate distinction of sentiment is viewing it as a contrarian indicator, which is the most important yet unusual.
5. 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.
6. This means that a client can lose more than their account balance and end up owing money to the broker.

Impact of Commodities Market on Forex Pairs

DailyFX provides client sentiment data based on all live IG CFD trades in the forex, commodity. While sentiment is a crucial factor in market movements, it should be just one aspect of a broader trading strategy. Combining sentiment analysis with solid technical and fundamental analysis typically yields the best results. Traders should remember that markets are complex systems influenced by numerous factors, and sentiment is just one piece of the puzzle. One interesting feature with most sentiment indicators is their contrarian nature.

Traders can see the percentage of IG’s clients on particular pairs who have gone long or short. Ultimately, to confirm the likelihood of a trend continuing, one needs to look for extremes between net long and net short positions. Since August 2020, we can see the red line (representing net short) was wide away from the blue line (representing net long). One powerful method of using this indicator is to confirm the extent of an existing trend. Using IG’s Client Sentiment tool as a contrarian indicator can be viewed as ‘fading the crowd’ – in other words taking the opposite direction of retail traders. All of this is made possible with IG’s real-time data on the most frequently traded markets, which can be used in any sentiment trading strategy.

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As a simple representation, when there is a general expectation of a bull market, the sentiment is bullish, positive, or optimistic (the opposite applies for a price decline – bearish, negative, pessimistic). The IG Client Sentiment Report is one of the most commonly used in this regard, especially in forex, and because of IG’s enduring popularity in the derivatives industry. The sentiment to a certain degree determines the demand and supply for a particular currency, stock, or commodity.

Sentiment analysis is rarely a topic typically discussed in trading communities, although it does deserve merit. The sentiment is strange because it’s inherently based on the emotion of market participants and crowd psychology, whose attitudes are an accumulation of various fundamental and technical factors. As confirmed by the report, the sentiment was likely to become bullish with more sell than buy orders. Moreover, we’ve drawn a trendline break in the chart if traders needed extra confirmation to look for buying opportunities going forward. Several traders can struggle with confirming the prevailing trend in a particular instrument. In the scenarios below, we’ve traced the directions of the XAGUSD, or silver, market along with the graph of net-long clients.

In the above diagram, price is in a strong up trend and sentiment is showing nearly three times more short traders for every long trader, therefore, this can be regarded as a bullish signal. Starting with client sentiment can be extremely useful as it can inform which market to trade and in what direction, before any other analysis is even done. Thereafter, traders can use technical analysis to spot ideal entry and exit points for that market. Before implementing a sentiment trading strategy, it’s essential to understand why client sentiment is regarded as a contrarian signal. Before implementing a sentiment trading strategy, it’s useful to understand why client sentiment is regarded as a contrarian signal.