How to use Forex Sentiment Indicators of VantageFX?

Measure bullish and bearish sentiment.

What is a Forex Sentiment Indicator?

VantageFX’s investment sentiment indicator shows the overall buy/sell ratio of customers in Vantage FX. The indicator is displayed in the following pie chart in the form of buy/sell percentage. Red represents selling and blue represents buying.

Investment sentiment indicator analysis is another tool that traders use together with other basic/technical analysis indicators to make investment decisions. This sentiment indicator warns investors of the imbalance between supply and demand of a certain product and the potential price reversal that it brings.

Consider this example: By looking at the EUR/USD investment sentiment indicator, you find that 95% of investors are buying, which means that 95% of investors need to sell their orders when closing positions. Imagine: How many buyers are left at this time? The imbalance of supply and demand like this has brought trading opportunities to go short before the 95% of investors close their positions.

Please note that the foreign exchange market is fragmented. VantageFX’s investment sentiment indicator only shows the trading conditions of customers on the Vantage FX platform. Through this indicator, you can roughly understand the general trading psychology of traders and gain an advantage in the imbalanced supply and demand market.

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Sentiment Indicators of Forex Market

As a professional ECN foreign exchange broker, Vantage FX’s foreign exchange traders account for the highest proportion of the total number of traders. This means that VantageFX has the most comprehensive data contained in the foreign exchange sentiment indicators of different currencies, and therefore can best reflect the current trading sentiment of traders.

VantageFX shows the main 8 currency exchange indicators, because these currency exchanges are not only the most popular, but also a barometer of global currency transactions.

See the Sentiment Indicators of Forex Market

Sentiment Indicators of Stock Index Market

In the index market, VantageFX has selected the largest and most liquid indexes to show to VantageFX’s customers to help them understand more comprehensive information and make corresponding decisions.

We encourage you to do some research on the global trading volume in different stock trading markets to ensure the comprehensiveness of your information and to evaluate the importance of the trading sentiment index in the stock index market.

VantageFX only trades the most liquid stock trading indexes in the world. You can view the investment sentiment indicators of these stock indexes on VantageFX’s Official Website.

See the Sentiment Indicators of Stock Index Market

Sentiment Indicators of Commodity Market

The chart below shows the sentiment indicator of VantageFX’s largest commodity trading market. Although the trading volume of many commodities is not very large, the trading volume for gold, silver and crude oil is still as high as expected. At the same time, you may not expect it: the trading volume of copper ranks fourth after the above three types of commodities, and the gap in trading volume is shrinking.

Due to the trading characteristics of commodities, their investment sentiment indicators usually fluctuate rapidly in a short period of time. Reading investment sentiment indicators can give you an advantage in trading.

See the Sentiment Indicators of Commodity Market

How can you use sentiment analysis to trade?

Understanding people’s psychology is also an important tool in fx trading, as forex gains and losses are responsible for the conversion of traders to economic data or technical signals. This is where sentiment analysis comes in.

Sentiment analysis focuses primarily on how the market feels about risk. Traders are generally confident in pursuing higher returns if they are willing to take higher risks, so they are generally likely to pursue high-yielding currencies and assets. On the other hand, if a trader is willing to take risks, he may invest his money in safe currencies and assets such as the US dollar and gold.

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Sentiment analysis is a market risk preference

Apart from that, knowing the on / off of risk helps to understand how a trader may react to a particular news report and economic announcement. With a strong risk appetite, the market may react more strongly to optimistic coverage and headlines that support their preconceptions, but not to pessimistic data at all. When risk aversion is in place, traders appear to react more negatively to weaker, more prejudiced data, with less attention to optimistic reporting.

What tools can measure market sentiment? One way is to look at the stock market. Equities are generally considered risky assets, so rising stock prices and indicators may indicate risk appetite, while falling stock prices may reflect risk aversion.

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Sentiment trading the big events

To keep track of the progress of the game, you can also observe futures that can give you a very good insight into the stock market movements of the day. When most futures are displayed in green, they can be a precursor to taking on potential risks in the next trading session. In this case, you can be wary of risk appetite movements like the US dollar, which is a safe haven, against the Australian dollar long.

If futures are displayed in red, it is a sign that traders are squeezing high-risk positions even before the market is open to the public. In this case, risk aversion, such as shorting the high-yielding NZD to the low-yielding Japanese yen, may be preferred.

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US Commodity Futures Trading Commission

Another common indicator is the commitment report published by the US Commodity Futures Trading Commission (hereinafter referred to as CFTC). The CFTC will give traders an overview of rising and falling demand for currencies by showing how other market players are trading currencies in this report.

When looking at how other traders feel about the market, they can push these assets in a particular direction over a long period of time, giving them a rough idea of ​​how the currency is moving.

To take advantage of this report, get the latest updates from the CFTC website and look for long and short positions for currencies like US Dollars, British Pounds, Japanese Yen and Commodity Dollars. Of particular importance is the difference between the sum of long and short positions below the commitment line, as a positive or negative reading indicates whether the market participant is a net long or a net short for that particular currency.

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