Exploiting sentiment imbalance?

[hanneswas]

Hey there,
if I look at the sentiment analysis proposed here
https://www.fxblue.com/market-data/tools/sentiment

with the focus on GBP I see the following picture:

• EUR/GBP is strongly bearish for GBP (could also mean bullish for EUR but lets take it aside hiere )
• EUR/USD ist more or less 50/50
• GBP/USD is also more or less 50/50.

But, if the GBP is bearish with respect to EUR, and EUR is 50/50 for USD, then GBP/USD should also be bearish and not around 50/50.

Anyone with "social arbitrage" experience here?

Lets see how the next week will move so we can see if this idea has some value.
Unfortunatelly, I do not have historical data of these for a deeper analysis.

 

[SunTrader]

It is bearish 44.2% vs 55.8%.

Click on sort button and select GBP and you will see yourself.

 

[tomorton]

I did think at one time of using sentiment as an inverse indicator - most traders are losing money so taking the opposite direction should be a good start.

But I found that most of the time the direction indicated simply repeated the prevailing trends. It seems that most traders will go short when a pair has established an uptrend and will go long when it has established a downtrend.

Its also follows from this that they are usually sellers of strong currencies and buyers of weak.

How did we get here?

 

[hanneswas]

I did think at one time of using sentiment as an inverse indicator - most traders are losing money so taking the opposite direction should be a good start.

But I found that most of the time the direction indicated simply repeated the prevailing trends. It seems that most traders will go short when a pair has established an uptrend and will go long when it has established a downtrend.

Its also follows from this that they are usually sellers of strong currencies and buyers of weak.

How did we get here?

if you look at the signals and EAs on the MQL5.com market, all of them are using some kind of martingale, which means open more long positions if the price falls. Maybe this is reflected by the sentiment graphs...

 

[noframe]

if you look at the signals and EAs on the MQL5.com market, all of them are using some kind of martingale, which means open more long positions if the price falls. Maybe this is reflected by the sentiment graphs...

Yeah it seems like sentiment graph.

 

[maxinger]

Hey there,
if I look at the sentiment analysis proposed here
https://www.fxblue.com/market-data/tools/sentiment
View attachment 269904
with the focus on GBP I see the following picture:

• EUR/GBP is strongly bearish for GBP (could also mean bullish for EUR but lets take it aside hiere )
• EUR/USD ist more or less 50/50
• GBP/USD is also more or less 50/50.

But, if the GBP is bearish with respect to EUR, and EUR is 50/50 for USD, then GBP/USD should also be bearish and not around 50/50.

Anyone with "social arbitrage" experience here?

Lets see how the next week will move so we can see if this idea has some value.
Unfortunatelly, I do not have historical data of these for a deeper analysis.

I have tried all the colorful and exotic things provided by the fx brokers.
All didn't work.

I am sure the fx brokers will continue to come up with
even more colorful and exotic things to attract even more customers.


You have to develop your own trading strategy.

Good Luck!

 

[LuckyMac]

I like the idea for sure but it needs to be coinciding with other confluences to make sure that you have a rounded judgement also needs to be backtested to make sure that it is profitable in the long run

 

[hanneswas]

I like the idea for sure but it needs to be coinciding with other confluences to make sure that you have a rounded judgement also needs to be backtested to make sure that it is profitable in the long run

Agree.
That is what I am trying to discuss.

As it looks today, the sentiment imbalance was referring to EUR and not GBP.
It could also be a coincidence.

 

[billv]

if I look at the sentiment analysis proposed here
https://www.fxblue.com/market-data/tools/sentiment
with the focus on GBP I see the following picture:

• EUR/USD ist more or less 50/50
• GBP/USD is also more or less 50/50.

First of all we need to understand what we are looking at.
These are RETAIL trader positions of LIVE accounts which are linked to FXBlue so they don't represent all trader positions in FX.

Now that know what these values are, let's see how we can use this information.
IMO the values which are near 50% are mostly of little value for the following reason.

Since our BUY or SELL orders are taken by our broker ( internally) or by their liquidity provider ( externally) , these folks don't want to lose and pay us so they will do everything in their power to take our money and the most obvious thing they will do is that they will drive price against our positions.

However, they will not do it when the positions are balanced 50/50.
When positions are near 50:50 most of the time price will move in a range for a while so that the Market makers collect more contracts and when 1 side becomes significantly heavier than the other, then that side will be punished.

Therefore I would concentrate at imbalances outside the 40-60% range
so if a currency pair is 60% SELL orders (40% BUYS), then the probability that price goes UP is higher than if the imbalance was 51% SELLS (49% BUYS).

If we analyze the higher value imbalances on our charts, we will see that there has been an extended move against retail trader positions in those particular currency pairs.
This is not unusual, it happens all the time, the market makers don't want to lose.
Remember what they say about the casinos? the house always wins.
Well, almost always....

 

[tomorton]

First of all we need to understand what we are looking at.
These are RETAIL trader positions of LIVE accounts which are linked to FXBlue so they don't represent all trader positions in FX.

Now that know what these values are, let's see how we can use this information.
IMO the values which are near 50% are mostly of little value for the following reason.

Since our BUY or SELL orders are taken by our broker ( internally) or by their liquidity provider ( externally) , these folks don't want to lose and pay us so they will do everything in their power to take our money and the most obvious thing they will do is that they will drive price against our positions.

However, they will not do it when the positions are balanced 50/50.
When positions are near 50:50 most of the time price will move in a range for a while so that the Market makers collect more contracts and when 1 side becomes significantly heavier than the other, then that side will be punished.

Therefore I would concentrate at imbalances outside the 40-60% range
so if a currency pair is 60% SELL orders (40% BUYS), then the probability that price goes UP is higher than if the imbalance was 51% SELLS (49% BUYS).

If we analyze the higher value imbalances on our charts, we will see that there has been an extended move against retail trader positions in those particular currency pairs.
This is not unusual, it happens all the time, the market makers don't want to lose.
Remember what they say about the casinos? the house always wins.
Well, almost always....

I agree with the conclusion that usually a 60-40 or greater imbalance of trader positions usually means the majority side have the direction wrong. But I don't agree that these guys were right until they were made wrong by the broker.

These traders were already wrong when they went in. Its usually the case that markets in a strong trend have the majority side holding positions in the opposite direction - most traders get short when they see a consistent uptrend on their screens that goes from bottom left to top right. Until they see that trend they don't get in. They're mentally programmed to do this, and they would be usually wrong, its not much to do with the broker.