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Of course, traders who are short will have to do the opposite; to close their short positions, they will have to buy. If such a trade is overcrowded according to the sentiment indicator, it can create the same kind effects in the upside direction, or also known as a short squeeze. Contrarian investors will seek for the crowd to have a market outlook, either to buy and sell, which would be reflected in the IG client sentiment tool.

Trading on sentiment: using IG client sentiment data

Discover how to increase your chances of trading success, with data gleaned from over 100,00 IG accounts. Please ensure you fully understand the risks and take care to manage your exposure. The lower section of the diagram simply shows the actual number of short and long traders overtime. Since traders had become increasingly net-short, it’s no surprise to see the red line well above the blue line for long periods. Returning to the GBP/JPY example, after realizing that most traders are short GBP/JPY, one could reasonably assume that this must be the correct trade to place.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. We can measure market sentiment using several tools, such as sentiment indicators (which we are going to explain later) or by simply observing the movement of the markets. One such tool that many retail Forex traders are using is the IG client sentiment data. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider.

General trading signals produced by IG Client Sentiment

You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Please consider the Margin Trading Product Disclosure Statement (PDS), Risk Disclosure Notice and Target Market Determination before entering into any CFD transaction with us. The top section of the diagram shows how price has evolved (green and red candles) and the blue/red sentiment line shows when traders are net long/net short. If there is a large distance between the sentiment line and price, this can be considered as a signal to trade in the direction of the trend. When new traders learn about the speculative sentiment index and learn to use it as a contrarian indicator, many think that they should always be trading in the opposite direction of retail traders.

Trading on client sentiment data can help you identify where other traders are positioned, which can often act as a contrarian signal. DailyFX provides client sentiment data based on all live IG CFD trades in the forex, commodity. IG client sentiment can provide a useful aid to trading financial markets. Our client sentiment looks at the overall positioning of IG clients in a market, in other words how many are long and how many are short.

​Integrating sentiment analysis into your trading approach

In the above diagram, price is in a strong uptrend and sentiment is showing over three times more short traders for every long trader, therefore, this can be regarded as a bullish signal. ​However, it’s important to approach sentiment analysis with a balanced perspective, using it as one of many tools in the trader’s toolkit rather than relying on it exclusively. ​Recognising when fear or greed has taken over can help identify market turning points, providing savvy traders with opportunities to capitalise on market inefficiencies. Another aspect that you need to keep in mind is that many traders do not trade using IG Client Sentiment only, but they combine sentiment with technical analyzing to ensure that they are going to use the appropriated trade size. 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, “View Full IG Client Sentiment Report”.

1. Staying informed about news and developments that could shift market mood is also essential for sentiment-based trading.
2. It is widely considered that readings greater than 2 indicate a meaningful bias among retail traders as this translates to at least 66.6% of traders net-long/short.
3. Trading on sentiment data can help traders identify trends in the market that may not be obvious to novice traders.
4. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument.
5. The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate.
6. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

Trading using market sentiment and how to find IG client sentiment in-platform

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. Readings that are red indicate net short positions in a currency pair, while readings in blue show that traders are net long the pair. Another way of viewing the degree of sentiment is to consider the ratio of long to short traders. It is widely considered that readings greater than 2 indicate a meaningful bias among retail traders as this translates to at least 66.6% of traders net-long/short.

1. Traders will find a chart and a quick summary of recent and overall sentiment numbers.
2. ​IG client sentiment can provide a useful aid to trading financial markets.
3. This analysis is the study of price movements in a market, in which operators make use of technical patterns and indicators to predict future market trends.
4. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

Generally speaking, the term market sentiment refers to the state of mind of the market during the current trading session. It can change quickly for different reasons, as well as various thoughts, feelings and actions. Share dealing and IG Smart Portfolio accounts provided by IG Trading and Investments Ltd, CFD accounts and US options and futures accounts are provided by IG Markets Ltd, spread betting provided by IG Index Ltd. Explore the range of markets you can trade – and learn how they work – with IG Academy’s free ’introducing the financial markets’ course.

Using IG’s Client Sentiment tool as a contrarian indicator can be viewed as ‘fading the crowd’ – in other words taking the opposite direction of retail traders. All of this is made possible with IG’s real-time data on the most frequently traded markets, which can be used in any sentiment trading strategy. While sentiment is a crucial factor in market movements, it should be just one aspect of a broader trading strategy. Combining sentiment analysis with solid technical and fundamental analysis typically yields the best results. Traders should remember that markets are complex systems influenced by numerous factors, and sentiment is just one piece of the puzzle. ​While sentiment is a crucial factor in market movements, it should be just one aspect of a broader trading strategy.