Good question.

The main ones I use are of course linked to those I have the best access to. Namely, FXCM Speculative Sentiment Index (SSI) figures and CFTC Commitment of Traders (COT) data. Others are much more simple news headlines in the financial and popular press; these can be the best contrarian indicators out there. Along more quantitative lines, I likewise find risk reversals on currency options quite useful on highly risk-sensitive pairs like the USDJPY.

The net result is that I try to identify market extremes or lack thereof and put them into my daily trade analysis.

Thank you David.

I like your respond because is in a way simple and very helpful. Some moderators forget that not all the members are at the same level of trading experience. I will star to look more at daily SSI reports you guys prepare. I believe they can be found at fxcm plus?
I hope other members read your respond David.

Let me chime in here about SSI... I'm no expert, but from what I know about it, just be careful not to use it to look for ideas. It is a simplistic tool, and should not be used to plan out trades. If you're going to use it, use it only to confirm ideas, but don't base an opinion on a position with the SSI as your central piece of evidence for investing in a certain direction.

Of course, that's just me... I'm interested to hear what the moderators think about SSI.

Hey tjack,
I agree with you. Making decisions only in one indicator would not be an educated guess. Even with very detail analysis trades can be wrong, but dont forget that you want to know what most of the traders are doing.

Going further, I would not only use it as a confirmation tool; but would also suggest to use it when it marks significant milestones - a recent historical extreme, a big flip, or a trend in positioning in one direction.

If we were looking at the SSI now, all of the pairs have moved towards parity - a good reading in itself suggesting range conditions are setting in. However, I wouldn't base any specific trade on this.

You could, as I suggest in my most recent report: http://www.dailyfx.com/story/strateg...456885163.html

use this as a way of filtering out good range trades. Given extensive firsthand experience with the SSI data, I can tell you that an SSI reading at or near 1 is a fairly good signal that range trade strategies (i.e. RSI-based or other oscillators) will be profitable through the near term.

Well, as an addendum, I can tell you that I actually use different criteria to establish "Range" conditions in a given currency pair, but it is a somewhat-discretionary judgment call. Given that I know that the relevant SSI's are at-or-near parity, I have more confidence that key currencies will continue rangebound until we see some sort of break of this recent pattern.

Hi David,
I read your posting on the sentiments where SSI is part of it. My question is if you see a brake on the trading range in one of the major currencies you expect to happen to others as well? Maybe i misunderstood .
Thanks.

What happened this morning to the USD?? It got slammed across the board, which personally ruined my morning to say the least. Let's just say that the only reason I'm not still upset is this delicious Italian restaurant I discovered for lunch...

But still, there was a pretty significant movement around 8am - 11am this morning of around 100 pips. Was it because of Bernanke/Paulson speaking (http://www.dailyfx.com/calendar/)?? I thought they had good news for the USD.

Yes Bernanke and Paulson talked, and Paulson stated that the housing market did not hit the bottom. He also said that steps need to be made to contain contagion if a big bank falls. Not helpful for sentiment. The dollar got rocked today as well. Yellen came out and spoke about the negative affects of consumer confidence. Yellen is a dove that needs not talk and when she does, sell the dollar because her dovish nature is a cancer to your dollar positions.

Well, I would just say that nothing in the currency market (and broader financial markets, for that matter) happens in a vacuum. That is to say, if we see continued breakouts in the Euro, it is likely we're seeing similar price action in other major pairs. Today is a good case-in-point. The same mayhem that is driving the Euro near record-highs is pushing the Australian dollar to multi-decade peaks. That's why I think it's useful to take a panoramic view of general market conditions.

I can tell you for a fact that range-trading strategies are not doing well today, while breakout strategies are likely doing significantly better. Of course, the trick is to be able to anticipate market conditions, but these kind of days are almost impossible to predict.

Thought I would make a note in the forum that EURUSD SSI is down to -3.17. This is the most extreme bias in short positions in the retail sector since late September.

In the recent past, this push to extemes has held to ranges; but over the longer-term such shifts have aligned themselves to breakouts. No matter what the outcome could be, the speculative group will be trade with the range b/c they like the easy placement of stops and entries.

I would say the probabilities for a breakout are high right now, but considering we have running quickly into the weekend, I am skeptical that we could be able to carry this momentum through to next week. I'll be playing the majors cautiously for the next few trading days.

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Hi David,
Thank you for the helpful respond. I will keep in mind to look the major currencies overall in my analysis.

In the recent days I have been reading articles about the investors being bullish on the USD. Some investors are looking forward and predict a stronger USD in currency market. They think the EUR is 30% overvalued versus dollar, based on purchasing power parity. In the last three years the prospect of higher interest rates in Europe has help the EUR rally. The question is can they expect the same in the current situation. Predictions are the ECB will lower the rates in the next meeting…
Open for suggestions…

I have been trading on EBS for four years now but it seems in the last year my executions are much worse. Seems like the market much less liquid for large orders. Lots of market impact.