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Forex, Gold, Silver, Brent Oil and More Sentiment Indicators

forex ig client sentiment

Meanwhile, the daily change in net-short positions is -20% with a weekly change of -39%, which means that clients are further net-short relative to the previous week. When this happens, retail traders may view the rise in short positions as a signal that the market is bottoming, further increasing their long holdings while driving price action in the opposite direction. For this reason, a bearish bias has been generated for the currency pair, once again exemplifying the manner in which IGCS may act as both a contrarian and leading indicator. In the table below, IGCS values are provided for a number of currency pairs, with readings in red indicating net short positions, while readings in blue represent net-long positions. When using sentiment analysis for the purpose of identifying trends, traders who are familiar with IGCS will likely look at markets displaying a strong directional bias, with more than 60% of traders holding positions in either direction. As can be seen below, this generally results in an opposite trading signal, highlighting the contrarian nature of IGCS.

Why is this sentiment index a contrarian indicator?

We can further see the gap between the blue line and price, hence why the sentiment is still bearish. 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. So, traders don’t have to scratch their heads when there isn’t a massive difference between net long and net short percentages. Overall, IG always represents the bias as either bearish, bullish, or mixed, which gives viewers a clear result to assume in their trading decisions. 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.

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Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed FTSE 100 trading bias. 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.

IGCS as a Technical Indicator: Summary

For example, a 65% long measure in EUR/USD could reflect a buying opportunity for trend followers or a selling opportunity for contrarians. Finally, the bottom chart shows us the actual Number of Traders Net-Long and those Net-Short—giving us a clear picture on whether traders are actively buying and selling at any given moment. 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. Clients were almost 70% net long at the lows in December, a very high level for indices which usually see low net long readings (ie net short). Sentiment returned to ‘normal’ from January onwards, with net long positions falling below 30%, but the small sell-off in early February saw this spike towards 35%.

To make the analysis easier, DailyFX provides a comprehensive report on major markets, showing IG sentiment overlaid on price. To get the full report, navigate to the sentiment page and click on the Green button labeled, “IG Client Sentiment Report”. 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.

forex ig client sentiment

By looking at the EUR/CHF four-hour chart, it appears that the market is in a downtrend, characterized by a series of lower highs and lower lows which can be confirmed with the use of a trendline which then acts as support. Furthermore, prices are trading below the 50 and 200 period Moving Averages (MA), with the Moving Average Convergence/Divergence (MACD) trading below the zero-line, all indicating that the bearish trend may continue. IG Client Sentiment (IGCS) is a tool used to represent client positioning amongst IG retail traders live accounts across a range of markets, including major currency pairs, commodities, cryptocurrencies and stock indices. However, as the percentage of traders holding net-short positions increases, prices begin to increase, narrowing the gap between the bulls and bears.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/GBP prices may continue to fall. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/CHF prices may continue to fall. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Oil – US Crude prices may continue to fall.

A potential trend change could occur when the red and blue lines converge (at the bottom), suggesting fewer buyers and more sellers are coming in. Ultimately, this is the index’s main job, observing these changes which beneficially help trend-focused traders form a solid directional bias. 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. Whether new or advanced, every trader has heard of technical and fundamental analysis, but very few have heard about the third type, sentiment.

Any sentiment indicator is a graphic or numeric depiction of the percentage of traders currently in long (buy) positions against those in short (sell) ones. 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). This means the tool might not be advantageous for scalpers and day traders as updates to IG client sentiment data don’t occur in real-time. Client sentiment, which looks at the number of long and short trades on a particular market, is a useful tool in a trading strategy.

Broker published data, only shows the sentiment from those who trade with that particular broker and may not be representative enough. Instead, it paints a more representative picture of the retail market sentiment using advanced algorithms and methods like AI. Similar to trend changes, we could consider looking at the index when the extremes change.

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. This indicator is best used for confirming a trend and the likelihood of its continuation. In short, when a large percentage of people are selling, the sentiment is actually bullish (and vice versa).

Only a tiny portion of brokers provide position summary information to the public, making this indicator a fascinating, insightful, and somewhat under-utilized addition to a trader’s toolbox, especially those who observe long-term trends. Still, this tool is not necessarily a leading indicator as the behaviors of buyers and sellers in currencies can change in a flash. Of course, IG is not the only broker publishing summaries of their client’s positions in the markets, though only a handful does. The lower section of the diagram simply shows the actual number of short and long traders over time. Since traders have become more and more net-long, it’s no surprise to see the blue line well above the red line for long periods.

  1. This occurrence is particularly prevalent when the market has been moving in one direction for an extended period.
  2. Another way of viewing the degree of sentiment is to consider the ratio of long to short traders.
  3. Traders should still look to utilize strong risk management in their trades, even with the assistance of IG CS.
  4. The client positioning indicator is provided by IG, a publicly traded, UK-based broker with beginnings stretching from 1974.
  5. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests FTSE 100 prices may continue to rise.

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. In this instance, there is a large disproportion between bullish and bearish sentiment, resulting in a bearish trading signal being generated, suggesting that the prices may continue to fall. One of the main advantages of using forex sentiment analysis is that it can help traders make more informed trading decisions. By understanding the overall sentiment of the market, traders can better anticipate price movements, identify potential trading opportunities, and manage risk more effectively.

It is not enough merely to ‘do the opposite’ but look at the changes in sentiment and the direction of travel for sentiment as well as the price. For short-term traders, identifying these relative extremes in price versus sentiment can be a useful addition to a trading strategy. Traders are further net-long than yesterday forex ig client sentiment and last week, and the combination of current sentiment and recent changes gives us a stronger Silver-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 NZD/USD-bearish contrarian trading bias.

Let us assume, according to our technical analysis, a particular market is at a critical resistance level on an uptrend. An immediate distinction of sentiment is viewing it as a contrarian indicator, which is the most important yet unusual. 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). Lower-than-expected inflation data from the US this week has shaken up USD pairs across the board.

When the traders net-long outnumber those short the centre line is a thick blue, and if traders net-short outnumber longs the line is red. The GBPUSD entered a strong downtrend through late 2016 and traded substantially lower, and most of the GBPUSD traders in our sample bought into these declines and thus remained net-long. In fact, our sample turned net-long on September 15, 2016 when the GBPUSD traded near $1.3200; it remained net-long until it traded to $1.2600 on December 2, 2016. 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.

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. 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. 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.

This strange phenomenon boils down to the perceived activities between retail and institutional traders. Traders can see the percentage of IG’s clients on particular pairs who have gone long or short. 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. The ‘sentiment nerds’ should have undoubtedly heard of the IG Client Sentiment Indicator/Index in forex, one of the most prevalently used sentiment tools. The client positioning indicator is provided by IG, a publicly traded, UK-based broker with beginnings stretching from 1974.

Traders can access IG Client Sentiment data using our interactive tool where markets and asset classes can be filtered accordingly. This has been a volatile currency pair, with dramatic swings over the past few months. 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.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Wall Street-bearish contrarian trading bias. Although this article focused on identifying trends with IGCS and technical analysis, other factors may contribute to changes in price action that may not necessarily be in the opposite direction to IGCS. For this reason, it is crucial to implement risk management at all times because regardless of the strategies or indicators in the strategy – the future will always retain at least some uncertainty. Furthermore, for each market, IG provides a better graphical representation (figure 4) and daily-updated reports to ensure traders can view the actual price movement against the sentiment data.