Sentiment Indicators: Using IG Client Sentiment

It powered past luxury goods giant LVMH at the Monday close after briefly taking the top spot last week, as it launched its weight loss drug Wegovy in the U.K. European stock markets closed lower Tuesday, as a boost from Chinese stimulus measures faded. Australia’s S&P/ASX 200 jumped 1.4% to 7,310.60, after the Australian Bureau of Statistics reported the monthly Consumer Price Index indicator rose 4.9% in the 12 months to July.

• For example, the EUR/USD chart below shows the projectible nature that can occur with IGCS.
• This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument.
• The report also showed that the number of Americans quitting their jobs fell sharply for the second-straight month, clear signs that the labor market is cooling in a way that could reduce inflation.
• Finally, the bottom chart shows us the actual Number of Traders Net-Long and those Net-Short—giving us a clear picture on whether traders are actively buying and selling at any given moment.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger FTSE 100-bearish contrarian trading bias. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Germany 40-bearish contrarian trading bias. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Wall Street-bearish contrarian trading bias.

​​​​EUR/USD and GBP/USD fall back as dollar rises while EUR/JPY keeps rising​​​​

Client sentiment, which looks at the number of long and short trades on a particular market, is a useful tool in a trading strategy. It is often said that clients look to sell into rising markets and buy into falling ones. There is an element of truth to this, but it is also important to look at turning points in sentiment, when the number of long positions begins to rise or fall. When combined with price analysis, the foundation of all good trading, a useful picture can emerge. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Wall Street prices may continue to rise. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise.

Data releases include euro zone revised second quarter gross domestic product (GDP) figures and the single currency area’s employment rate for the second quarter. Retail sales were higher in August, figures from the British Retail Consortium showed on Tuesday, as consumer confidence improved. French luxury group LVMH traded 0.8% lower after losing its spot as Europe’s most valuable company to Novo Nordisk, which was 1.45% higher. Luxury stocks were broadly downbeat on the latest set of weak Chinese economic data.

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The Dow Jones Industrial Average rose 0.8% to 34,852.67, and the Nasdaq composite finished 1.7% higher, at 13,943.76. That was lower than the expected 5.2%, marking the first time since February 2022 that the indicator fell below 5%. At this stage, we know which market to trade and know the direction to trade it but there are further factors to consider and these are explored in the remainder of the article. Discover the range of markets and learn how they work – with IG Academy’s online course. IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority. Investors await the latest jobless claims figures, inflation, and speeches from Fed officials to figure out the Fed’s next move on interest rates.

IG Client Sentiment (IGCS) is a tool that traders can use in conjunction with a broader technical and/or fundamental strategy. IGCS incorporates retail trader positioning (long and short) to formulate a sentiment bias. This is represented in percentage form (see image below) which aids traders in identifying market imbalances which could lead to possible opportunities. In the above example our sentiment indicator shows that traders are overwhelmingly short the EURGBP, but this does not mean we should simply buy. Instead we can look at the IG Client Sentiment index as giving us a directional bias – it suggests whether you should look for opportunities to buy or to sell. In our next guide we will take a closer look at more detailed examples of how we might use the IG Client Sentiment index in our trading.

EUR/USD

IGCS is a sentiment analysis tool which focuses on the client positioning of retail traders across a range of markets, including currency pairs, indices, commodities and cryptocurrencies. The rationale behind this concept is that retail traders have the tendency to follow the crowd and often attempt to call tops and bottoms, failing to recognize that the market may be reaching extreme levels. This information is accessible on the sentiment report page where a summary table will appear with the detailed reports further down the page.

The combination of current sentiment and recent changes gives us a further mixed AUD/USD trading bias. We have shown how sentiment/IGCS can be a unique, proprietary and potentially helpful addition to a trader’s approach. In subsequent IGCS articles in this market sentiment sub-module, we will go through the implementation and flexibility of this tool in varying trading circumstances. Data released Tuesday painted https://g-markets.net/ a mixed picture of price pressures in the euro zone, as producer prices continued to fall but long-term consumer inflation expectations ticked higher. To make the analysis easier, DailyFX provides a comprehensive report on major markets, showing IG sentiment overlaid on price. To get the full report, navigate to the sentiment page and click on the Green button labelled, “IG Client Sentiment Report”.

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The direct overlay of client sentiment onto price data allows the trader to track both in tandem. And indeed by studying these charts it is easy to see how market prices and sentiment are most often quite correlated. Using client sentiment as the starting point however, can be extremely useful as it can inform which market to trade and in what direction, before any other analysis is even done. Thereafter, traders can use technical analysis to spot ideal entry and exit points for that market. To summarise, there are numerous ways to measure market sentiment and get ahead of the market before big moves occur.

• The above examples should help to illustrate how to treat client sentiment.
• Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUD/JPY-bearish contrarian trading bias.
• Market sentiment is demonstrated through price movements of the security in question.
• Consumer price inflation in Germany dipped slightly to 6.4% in August on an EU-harmonized basis, according to preliminary figures.

However, when the price began to rise in early January, long positions decreased and short positions rose. While the attention of many is drawn to what happened as the price changed direction, the interesting element is actually the wide divergence on the chart between price and sentiment. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/JPY price trend may soon reverse lower despite the fact traders remain net-short. Recent changes in sentiment warn that the current US 500 price trend may soon reverse lower despite the fact traders remain net-short.

Another useful and often overlooked feature of the report is the changes in long and short positions. This feature is particularly helpful to traders when recent moves in sentiment are sizeable and move conversely to the overall sentiment. Such large changes could indicate a reversal in overall sentiment and the market itself. Before implementing a sentiment ig market sentiment trading strategy, it’s essential to understand why client sentiment is regarded as a contrarian signal. It’s crucial to note that traders should not trade based on IG Client Sentiment alone but should combine sentiment with technical analysis and ensure that the appropriate trade size (in relation to the account size) is used at all times.

Traders can look to sentiment at the very start of the analysis process or they can conduct thorough technical and/ or fundamental analysis and seek out client sentiment as confirmation of the trade. This shows the importance and impact of sentiment on markets, but also highlights the need to blend it with other measures such as technical analysis or fundamental analysis. Similarly, we saw net long positions decline to below 30% in March of this year when the price hit highs around 148. The combination of a new high for the year and bearish client sentiment suggested a turning point was at hand. While downside has been limited so far, it was a sign that the steady rally from the January lows had come to an end for the time being.