Talking Points
- SSI is a positioning tool gauging market sentiment
- Scalpers will use SSI extremes to identify Forex trends
- An extreme negative GBPUSD SSI reading may lead to continued bull trend
SSI (Speculative Sentiment Index) is a proprietary trading tool to FXCM, offered to its clients through DailyFX PLUS. SSI can be used to determine trading positioning, and can be extremely helpful to decipher the trend afer a volatile news event. Currently SSI for the GBPUSD is reading an extreme -4.98. Today we will review exactly what this may mean for the upcoming trading weeks ahead, in tandem with a post NFP market environment
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Learn Forex – Current SSI Readings
SSI and the Pound
As of Friday morning prior to the NFP event, we can see in the chart above that the SSI reading for the GBPUSD had reached an extreme reading of -4.98. As the number reads negative, this means that almost 5 positions were short on the GBPUSD relative to net long positioning.
The main reason that the SSI reading has reached these extreme levels is primarily due to the currency pair’s strong trend. Below you can see the GBPUSD trending as much as 1692 pips higher from Julys low through this week’s high. As most traders attempt to fade strong trends, SSI has become more negative as the pair continues to trade towards higher highs.
Learn Forex – GBPUSD Daily Trend
(Created using FXCM’s Marketscope 2.0 charts)
Trading the GBPUSD
Trading with SSI can help us understand if a trend is still viable. On Friday, the market had an adverse reaction to the NFP event. The announcement beat expectations, causing prices to move against the predominant GBPUSD trend. Using SSI as a contrarian indicator that retracement could allow GBPUSD bulls an opportunity to purchase the currency pair at a lower price.
As with any component in an existing trading plan, SSI should be continually monitored. This can be done through DailyFX PLUS where it is updated twice daily. If position continues to be largely net short in the coming weeks, then this can be taken as a confirmation to the continuation of the current uptrend. Knowing this, traders can use this information to continue looking for opportunities to buy the GBPUSD on price dips. Conversely, if SSI begins to advance and net short interest declines this could be taken as a signal that the current uptrend in the GBPUSD is at least temporarily coming to a conclusion.
Learn Forex – GBPUSD Post NFP
Now that you are a little more familiar with SSI, you can begin using this tool to help find trading opportunities. You can get started following prices for gold and your favorite currency pairs such as the EURUSD and GBPUSD with a Free Forex Demo with FXCM. This way you can develop your trading skills while tracking the market in real time!
---Written by Walker England, Trading Instructor
To contact Walker, email instructor@dailyfx.com. Follow me on Twitter at @WEnglandFX.
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