The Speculative Sentiment Index (SSI) is an innovative way to analyze forex market sentiment. It can be used by traders, analysts, and currency followers alike, and is available for free twice a day on DailyFX+ for all FXCM live account holders. The public can also view a weekly SSI report on Thursdays on DailyFX.com.
As shown in the diary below, the SSI signals proved correct for the Swiss franc, the British pound, and the Australian dollar against the US dollar on April 14.
The SSI Diary on Selected Dollar Pairs – April 14, 2011
The SSI has been correct for at least 2000 pips worth of decline; it has constantly been calling for USD/CHF declines since June 2010, when the USD/CHF was at 1.10. Today, the pair traded at 0.89.
The forex trading crowd has remained consistently net-long on the US dollar against the Swiss franc since the pair traded near the 1.10 mark, giving a consistent signal to stay short the fast-falling pair. Today, the ratio of long to short positions in the USD/CHF stands at 4.56 as nearly 82% of traders are long. The SSI signals more USD/CHF losses.
On average, 60% of traders have been short the GBP/USD since April 5. That means that the SSI has been constantly negative, ranging between -2.84 and -1.28, and signaling GBP/USD gains. The successful traders in the past week would have been the ones who were long this pair. Today, the SSI continues to signal for more GBP/USD gains.
As seen in the AUD SSI Diary from March, the SSI has been predicting more gains in the Aussie, and it has consistently been right. Traders have been looking for a top on the pair, but the SSI continues to signal further gains. The AUD has not topped yet, so remaining long is recommended.
USD/USD, GBP/USD, AUD/USD Price and SSI, Jan – Apr 2011
Increase Your Chances for Profit through SSI
When markets are trending the majority of retail forex traders sell into rallies (when the prices go up) and buy into declines. The historical data atFXCM Inc. (FXCM) shows that many of the most successful traders are actually the ones who move against the crowd. They can use the SSI to see what the crowd is doing and trade the markets as a contrarian.
FXCM has one of the largest cross-sections of forex traders in the world and, therefore, has a credible amount of client data from which to draw the SSI. In the month of March 2011, FXCM’s nominal total retail trading volume was $314 billion.
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FXCM Inc.(NYSE: FXCM) is a global online provider of foreign exchange (forex) trading and related services to retail and institutional customers worldwide.
At the heart of FXCM's client offering is No Dealing Desk forex trading. Clients benefit from FXCM’s large network of forex liquidity providers enabling FXCM to offer competitive spreads on major currency pairs. Clients have the advantage of mobile trading, one-click order execution, and trading from real-time charts. FXCM's UK subsidiary, Forex Capital Markets Limited, also offers CFD products with no re-quote trading and allows clients to trade forex, oil, gold, silver, and stock indices on one platform. In addition, FXCM offers educational courses on forex trading and provides free news and market research through DailyFX.com.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. DailyFX has taken reasonable measures to ensure the accuracy of the content herein, however, does not guarantee its accuracy, and will not accept liability for any loss or damage that may arise directly or indirectly from the content and your use of the charting indicator and EAs herein. In addition, the content herein, including, but not limited to, the charting indicators and EAs is provided as general market commentary and does not constitute investment advice.
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