Exploiting sentiment imbalance?

[billv]

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.

Ok understood and I didn't say that the broker is responsible.

However, now that you've mentioned it, you got me thinking and....
if I were paranoid and wanted to think of conspiracy theories, I could imagine a big broker making a move against their client positions by using their hidden offshore trading funds, and in secret coordination with 1 or more of their mates in some LP bank.....

LOL, I have a very wild imagination

 

[tomorton]

I'm cynical enough to think you could be right in certain circumstances.

But for the world as it is today brokers don't need to cheat their private retail clients out of winning positions as long as their clients have such dumb behaviour patterns.

 

[billv]

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.

And if I could add to that, if it is 60% Buy orders the probability that price will go up from here is small, the LP's will most likely push price lower so it is safer to only place short trades for a while.

I'm not saying that some buy trades will not be profitable, I'm simply thinking of whom I'm trading against and looking at the odds.

 

[tomorton]

You have a very polarised view of the markets.

While its true that the losing traders pay for your profits, neither you nor the intermediaries make them lose. The losing traders are the swimmers who swim out to sea and drown. You're the swimmer who swam out and came back having speared a fish. You did not need those other guys to drown and you did not need them to miss the fish in order for you to get back home with food.

The intermediaries are the guys selling the spears. They don't need to take the commercial or regulatory risk of selling faulty spears, they just need a lot of people to buy spears. Most of them won't get a fish but they'll need another spear tomorrow: so tonight the spear-sellers can go off down to the fish restaurant for a nice meal - happy days.

Just to add the obvious - traders who go short in a downtrend are swimming against the tide.

 

[billv]

You have a very polarised view of the markets.

I think you've misunderstood my point, I'm not in the opinion that I'm trading against other people.

In fact I'm certain that the majority of my trades are filled by liquidity providers so my opponents have big pockets and they can move the market.

Therefore, IMO we should pay attention to the market sentiment numbers and preferably we should trade in the direction which has the lowest market sentiment percentages so that we are not fighting the big money.

 

[SunTrader]

Broker sentiment readings are of the sheeple.

Sometimes they may align with the smart money. Repeat sometimes.

And brokers most definitely can and do trade against these readings - legally in many jurisdictions.

 

[billv]

Broker sentiment readings are of the sheeple..

Yes we cannot just follow a reading.

We need to understand what we are looking at

Are these numbers from 1 broker or from many brokers? What volumes do they represent and are those volumes significant enough to be considered useful?
For example, FXblue numbers are from various brokers and many trading accounts but are these accounts large enough to give us a good order book picture?
If the volumes are low, are there other web sites which have higher trade volumes?
Should we perhaps be looking at IG sentiment or myfxbook sentiment instead?

How up to date are these readings?
The syncing of the fxblue web site with all their MT4 accounts could take time so perhaps that information is 30 or 60 or 90 minutes late?

Once we have a good picture of what we are looking at, then the next step would be to try and match that picture with what we see on the charts.
We should understand the market cycle we are in and then decide if this information is useful to our strategy OR not.

 

[kroxobor]

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.

Do they derive data from retail traders exposure on those pairs? If yes then I guess it is useless since it's unlikely that their trades can move the market. Also bear in mind that majority of retail traders lose according to broker ads