Talking Points:
• Sentiment is not a simple read for 'the market' as there are many motivations and various levels of conviction
• Tools like the SSI and COT are useful indicators but they should not be automatically construed as contrarian
• Evaluating momentum, congestion or reversal requires appreciating context around sentiment
See how retail traders are positioning in the majors in your charts using the FXCM SSI snapshot.
Chief Strategist John Kicklighter discusses underlying considerations for developing a personal trading strategy. Sentiment is a measure of intent across the entire market. As there are many different participants in the market, that rarely entails the same motivation and level of conviction. However, sometimes particular drivers can draw a broad interest or ultimately leads to a consistent drive in direction and intensity. Understanding that we are making an assessment of motivations of a diverse crowd, we can better appreciate that there isn't a simple read on the market or in the tools we use to track sentiment. Measures like the SSI and COT are powerful tools, but they need to be put into context with analysis. Sometimes they are good measures of building conviction and sometimes they are incisive contrarian measures. Determining that orientation though depends on closer evaluation. We discuss using sentiment and its popular tools in this week's trading strategy webinar.
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