Sentiment evaluation in Forex and its required indicators
A sentiment evaluation is a measurement that estimates the actual position of a trader in the market. This evaluation measures whether a trader has short or long positions.
It also digs into how the trader has achieved those positions and predicts his future steps. Then, it reaches a final decision based on the findings of the overall evaluation.
Contrarian traders use a forthright-looking instrument, sentiment analysis, to go short or long positions or go in the crowd’s opposite direction. For example, according to the Contrarian perspective, if a Forex market remains long, going down the price is a single way.
Although a trader can analyze the Forex market in three ways, and underestimated addition to the trader’s arsenal is sentiment evaluation. In trading, by using this evaluation, a trader can also decide the fundamental or technical analysis.
1) FXSSI Speculative Sentiment Index Indicator
The most widespread proprietary sentiment evaluation tool is known as FXSSI Speculative Sentiment Index Indicator. You will select a Forex currency pair, and the SSI indicator will reflect the buyers and seller’s ratio. This is the most understood and widely used tool in Forex sentiment evaluation, and gives an overall evaluation for trading futures in a smart way.
A contrarian indicator is SSI, and it’s used to assist traders in taking the crowds to opposite sites. Remember, we described earlier that if it is a net long market, then the price going down is the mere position for it, as it’s inevitable. In this situation, the SSI indicators help you to trade against the crowd and enable you to take your position to get a potentially signifiant trade advantage.
2) Order book indicator
Order book indicator is the second evaluation tool, and it is based on the position of broker clients. The traders can view the price level where the stop-loss contracts accumulate by this Forex order book sign. The chart highlights the sitting place of enormous numbers, and it is giving the trader a planning edge for managing the trades.
3) Profit ratio
The profit ratio indicator shows all the possible points where a turnaround may occur. As a result, this leading indicator helps a trader by giving them a heads up regarding the market’s potential reversal levels before the price’s opposite direction moving.
The evaluating indicator profit ratio displays the trader’s percentage currently holding their accounts profitable position out of the whole market positions. A typical reading indication would be 25%.
4) Open interest
On our list, open interest is the fourth gauge of Forex sentiment evaluation. This tool displays open positions total number’s graph, both short and long. In addition, it is a tool that shows the market’s available orders total volume for a certain period.
Among traders, a popular choice is this sentiment indicator because it provides a straightforward line output. Moreover, compared to the others, it is much simpler to read the result of this.
This indicator has several settings, and you can ignore that because you will find the data easily that is most valuable to you. So, for example, there is available data for all the questions whether you require the number of open positions total number in the market.
5) CoT report
The CoT (Commitment of Traders) report is not a precise assessment indicator, but it’s still a valuable sign that can help you make decisions and keep you on the right side of the market. CFTC (Commodity Futures Trading Commission) publishes the CoT report, giving you a thorough snapshot regarding the trader’s types of short or long futures market, including the currencies.
Sentiment analysis in Forex is a robust market tool, and one that has become increasingly mainstream. While sentiment research will never provide you with a mechanical Forex trading strategy with accurate entry and exit points, it might offer you an alternative when combined with traditional technical or fundamental analysis.