IG Client Sentiment Indicator in Forex: A Useful Tool for Sentiment Analysis

ig client sentiment

Our forex market sentiment indicator shows the percentage of traders going long and short, how sentiment is shifting, and whether the overall signal is bullish, bearish or mixed. One of the most popular methods of measuring sentiment is using sentiment indicators. These indicators provide insights into market sentiment , such as the percentage of traders who are bullish or bearish on a particular currency. 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.

IG Client Sentiment Indicator in Forex: A Useful Tool for Sentiment Analysis

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. 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. Likewise we often look to sell into a market where price has risen, and quickly we see why most traders tend to go against the prevailing trend.

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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. As with any concept, sentiment can frequently change even throughout the day. The other drawback is IG client sentiment data is only limited to the number of clients trading with IG (reportedly around half a million) instead of the entire forex market. The main reason this sentiment indicator is regarded as contrarian stems from the objectives of retail and institutional traders. Retail investors tend to trade against the trend or ‘pick tops and bottoms’, creating a trap for institutional traders or the ‘big boys’ who have enough power to drive price in the opposite direction.

Trading with IG Client Sentiment Data

The combination of current sentiment and recent changes gives us a further mixed Gold trading bias. Positioning is more net-long than yesterday ig client sentiment but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

  1. The tool is a graphical representation of client positioning or a percentage of how many clients are net-long (buying) versus net short (selling) on a particular pair.
  2. While there are various methods of measuring sentiment, traders should use sentiment analysis in conjunction with other technical and fundamental analysis tools to make informed trading decisions.
  3. 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.
  4. Shane Oliver, chief economist at AMP, does not think that the RBA will hike again, but it is likely to reinstate its tightening bias, adding another rate hike is now a “high risk.”
  5. IG Client Sentiment, or IG CS, uses data derived from IG retail traders with live positions.

Methods of using the IG Client Sentiment Indicator

The combination of current sentiment and recent changes gives us a further mixed Wall Street trading bias. The combination of current sentiment and recent changes gives us a further mixed USD/JPY trading bias. Recent changes in sentiment warn that the current US 500 price trend may soon reverse lower despite the fact traders remain net-short. Traders are further net-long than yesterday 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. Positioning is less net-short than yesterday but more net-short from last week.

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. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose.

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.

ig client sentiment

The information on this website is not directed at residents of countries where its distribution, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. The above examples should help to illustrate how to treat client sentiment. 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. This has been a volatile currency pair, with dramatic swings over the past few months.

Readings that are red indicate net short positions in a currency pair, while readings in blue show that traders are net long the pair. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. It is not a solicitation or a recommendation to trade derivatives contracts or securities and should not be construed or interpreted as financial advice. Any examples given are provided for illustrative purposes only and no representation is being made that any person will, or is likely to, achieve profits or losses similar to those examples. DailyFX Limited is not responsible for any trading decisions taken by persons not intended to view this material.

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. The client sentiment index or report is a free tool provided by IG, one of the oldest CFD brokers worldwide (established in 1974). IG provides real trading data reflecting the percentage of their active clients net long or net short on a specific instrument and then showing an overall signal (bullish, bearish, or mixed). 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.

Sentiment may improve technical analysis and enable more consistent trading, particularly for those looking to trade against the consensus. Find out more with our guide to trading with IG client sentiment data, as well as how to approach sentiment analysis in forex trading. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger FTSE 100-bullish contrarian trading bias. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/CHF-bullish contrarian trading bias. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUD/JPY-bullish contrarian trading bias.

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