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Forex Sentiment & Volume Analysis - GBPUSD

Forex Sentiment & Volume Analysis - GBPUSD

2015-04-14 03:00:00
Rob Pasche, Forex Trading Instructor
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Talking Points:

  • GBPUSD broke to new lows
  • Breakout occurred on large volume
  • GBPUSD SSI reached +3, retail participants were 75% long

Since the last time we looked at the GBPUSD, the Pound has fallen about 200 pips, much to the delight of sentiment and volume traders. We had noticed that volume was increasing while price was falling and that most retail traders were long GBPUSD. Both of these signaled further GBPUSD decline.

Today will be an update about where we could position our accounts based on the latest sentiment and volume readings. Also, if you wanted to use sentiment and volume in your own trading, the following links show you how to access these tools.

Retail Sentiment is acquired using DailyFX Plus’ Speculative Sentiment Index. It is free for real FXCM account holders, but is also free for anyone using a two week trial: DailyFX Plus Trial

Retail Volume is available on FXCM’s Trading Station Desktop platform. This free software can be downloaded here and a free demo login can be acquired here. Real Volume is a default indicator that can be added to your charts.

GBP/USD Breakout on Above Average Volume - Bearish

One use for real volume is as a breakout confirmation tool. What traders look for are times when price breaks above or below support or resistance with an unusually high amount of volume. When there is a large amount of volume during a move, this tells us there was stronger conviction than had the break occurred on low volume.

In the chart below, we can see the spike in volume that was generated while GBPUSD broke a significant level of support. While we haven’t seen much follow through today, there are definitely many traders watching this pair if it breaks again.

Learn Forex: GBP/USD Breakout on Above Average Volume

Forex Sentiment & Volume Analysis - GBPUSD

(Created using Marketscope 2.0 charts)

Today, we did see another low created, but later price retraced. This may be disheartening for short GBPUSD traders, but the retracement occurred with about half the volume that was generated when the actual breakout occurred. This could be seen as a bearish signal in itself.

GBPUSD SSI Reaches Extreme Positive Reading - Bearish

There was a historic moment last week when GBPUSD reached an SSI level of +3. This means that 75% of GBPUSD traders at FXCM were long, a major sentiment reading. In fact, this was the highest SSI we’ve seen on the GBPUSD in almost 2 year.

The chart below was copied from DailyFX On-Demand’s Live SSI portal. This gives us more accurate sentiment data for the last 3 months. The spike in SSI coincided with the breakout in the GBPUSD. Since then, SSI has moved to a ‘tamer’ +1.6, meaning the ratio of longs to shorts is around 60/40

Learn Forex: GBP/USD SSI Reaches Two Year High

Forex Sentiment & Volume Analysis - GBPUSD

(Screen capture from DailyFXOn-Demand)

I’d like to see SSI climb back above +2.0, because in the past 3 months, we’ve seen our biggest drops at those levels. But as long as SSI remains positive, my short bias remains.

In Conclusion

We continue to look for Cable to fall further with the help of positive SSI and confirming volume. Feel free to utilize a demo account to practice trading risk-free before trading with real money and perform your own due diligence.

Good trading!

---Written by Rob Pasche

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