Nice analysis. I like how you focus on short-term momentum and not the absolute ratios. Though the latter is certainly important, it becomes extremely important to note where retail traders are heading, not where they currently are.

The unfortunate fact remains that "the herd" (and I don't use this term pejoratively nor with any sense of contempt) is most often wrong about short-term forex price action. If we see droves of retail traders trying to latch onto the EURUSD or GBPUSD on pronounced dips, it is most often a sign that such declines will continue. The bigger players will always seek to exploit market opportunities and will almost certainly trade against the small guy on evidence that he/she is consistently incorrect.

1PM UPDATE
quote ratio %long signal
EURUSD 1.34645 -1.03 49% Bullish
GBPUSD 1.99222 1.18 54% Bearish
USDCAD 1.07620 2.26 69% Bearish
USDCHF 1.21895 2.16 68% Bearish
USDJPY 117.278 2.62 72% Bearish


USDJPY - The ratio of long to short positions in the USDJPY stands at 2.62 as nearly 72% of traders are long. Yesterday, the ratio was at 2.59 as 72% of open positions were long. In detail, long positions are 1.8% lower than yesterday and 39.4% stronger since last week. Short positions are 2.9% lower than yesterday and 28.5% weaker since last week. Open interest is 2.1% weaker than yesterday and 12.5% above its monthly average. The SSI is a contrarian indicator and signals more USDJPY losses.

EURUSD - The ratio of long to short positions in the EURUSD stands at -1.03 as nearly 51% of traders are short. Yesterday, the ratio was at -1.09 as 52% of open positions were short. In detail, long positions are 2.4% lower than yesterday and 51.2% stronger since last week. Short positions are 8.0% lower than yesterday and 25.0% weaker since last week. Open interest is 5.4% weaker than yesterday and 1.6% below its monthly average. The SSI is a contrarian indicator and signals more EURUSD gains.

GBPUSD - The ratio of long to short positions in the GBPUSD stands at 1.18 as nearly 54% of traders are long. Yesterday, the ratio was at -1.25 as 56% of open positions were short. In detail, long positions are 20.2% higher than yesterday and 51.9% stronger since last week. Short positions are 18.9% lower than yesterday and 48.5% weaker since last week. Open interest is 1.5% weaker than yesterday and 21.3% below its monthly average. The SSI is a contrarian indicator and signals more GBPUSD losses.

USDCAD - The ratio of long to short positions in the USDCAD stands at 2.26 as nearly 69% of traders are long. Yesterday, the ratio was at 3.28 as 77% of open positions were long. In detail, long positions are 14.1% lower than yesterday and 26.7% weaker since last week. Short positions are 24.8% higher than yesterday and 51.3% stronger since last week. Open interest is 5.0% weaker than yesterday and 3.8% below its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses.

USDCHF - The ratio of long to short positions in the USDCHF stands at 2.16 as nearly 68% of traders are long. Yesterday, the ratio was at 4.07 as 80% of open positions were long. In detail, long positions are 24.5% lower than yesterday and 36.3% weaker since last week. Short positions are 42.3% higher than yesterday and 76.2% stronger since last week. Open interest is 11.3% weaker than yesterday and 17.7% below its monthly average. The SSI is a contrarian indicator and signals more USDCHF losses.


For information on an FXCM Managed Fund that takes advantage of the SSI, please review our Sentiment Fund at: http://www.fxcmmanagedfunds.com/ or call +1 646-432-2968

Jamie and Antonio,

First off let me say that I appreciate all the help you guys, and FXCM in general, gives to its clients in an effort to make all of us better, more informed traders.

Having said that, I am eternally frustrated here. I have read EVERYTHING you guys have posted on how to interpret both the COT report and SSI and I must admit, I cannot grasp the concept of how you interpret the information. Maybe if I knew how to READ THE ACTUAL GRAPH, it might help me better understand the concept.

I do not want to slow this thread down by having you guys explain AGAIN what COT/SSI means. Perhaps if you can recommend a site online, an article, a book, etc, which goes into GREAT DETAIL what the COT report is and how to read the graph, I would appreciate it. I REALLY want to grasp this, as it appears to be a valuable trading tool.

By the way, I'm also having difficulty grasping the concept of interpreting RISK REVERAL and IMPLIED VOLATILITY, so again, if you can refer me to a site, i'd appreciate it.

I'm a fairly new trader, so please, bear with me.

Thank you in advance.

Hi DMoore727,

The way I look at Antonio's posts on SSI is this: The SSI is like a seesaw with EUR bulls at one end and bears at the other. When retail EUR bulls sit at one end of the seesaw, the other end rises and vice versa. Euchre's "guts" report (Sorry Euchre, it really does deserve naming!) watches to see when traders are shifting positions, sliding across to the other side as it were. The most fun is to be had on the side that's being lifted, the opposite end of the seesaw. That's the way I picture it.

Attached Images

 

No problem. Don't feel like you are slowing things down. I am sure that there are people out there with the same questions. Any sentiment indicator will move with the market (except SSI..which moves against the market). The key is to follow the trend (or fade it when it comes to SSI). Once a sentiment extreme is registered (example...an extreme amount of longs compared to shorts in COT indicates that the market is 'crowded' and that the trend has a high probability of reversing), we look for a reversal. I wrote an article about gauging sentiment that can be found here http://www.investopedia.com/articles...y_reversal.asp

I hope it helps

Last Week -Present -% Long -% Change in Positions Outstanding - Signal
EUR/USD - 1.41 - 1.09 48% -6.35% Bullish
GBP/USD - 1.39 + 1.08 52% -23.79% Bearish
USD/JPY +1.88 + 3.16 76% +4.66% Bearish
USD/CHF +4.21 + 1.90 65% -26.00% Bearish
USDCAD +3.00 + 2.44 71% -6.57% Bearish

USDJPY – According to our latest dealing data, the ratio of long to short positions in the USDJPY stands at 3.15 as nearly 76% of traders are long. Yesterday, the ratio was at 2.07 as 67% of open positions were long. In detail, long positions are 9.6% higher than yesterday and 37.9% stronger since last week. Open interest is 2.7% weaker than yesterday and 10.6% below its monthly average. In general, when traders start having adverse movements against their position, many tend to increase the size of their position with the purpose to average down their entry price in one last attempt to recover from previous losses. However, in the past, when retail was long and buying more, the USDJPY has sold off in the following days.

The FXCM SSI is based on proprietary customer flow information.

The absolute number of the ratio itself represents the amount by which longs exceed shorts or vice versa. For example if the EURUSD ratio is 2.55, long customer orders exceed short orders by a ratio of 2.55 to 1.

Conceptually similar to contrarian analyses using the CFTC IMM open position data or COT Report, the SSI provides an alternative approach that is both more timely and accurate in forecasting currency price movement.

The SSI is a contrarian indicator that tells you how the market is weighted and where the trend may head. More long positions don't necessary suggest more confidence in the direction of the current trend. I

n general, when traders start having adverse movements against their position, many tend to increase the size of their position with the purpose to average down their entry price in one last attempt to recover from previous losses. However, the higher the number of short orders in a bull market the more dangerous is to take additional shorts because many of those traders who just entered the markets are also leaving their protective stop losses just above the current price action.

FXCM SSI Signals

EURUSD 1.35057 -1.14 47% Bullish
GBPUSD 1.98633 1.33 57% Bearish
USDJPY 113.926 2.75 73% Bearish
USDCHF 1.20382 2.33 70% Bearish
USDCAD 1.05958 2.78 74% Bearish

The ratio of long to short positions in the USDJPY stands at 2.75 as nearly 73% of traders are long. Yesterday, the ratio was at 2.07 as 67% of open positions were long. In detail, long positions are 13.0% lower than yesterday and 9.5% stronger since last week. Short positions are 34.6% lower than yesterday and 45.9% weaker since last week. Open interest is 20.0% weaker than yesterday and 26.0% below its monthly average. The SSI is a contrarian indicator and signals more USDJPY losses.

Jamie, Black Day and Antonio,

What can I say but THANK YOU SO MUCH for your reponses.

Believe it or not, I THINK I'VE GOT IT............LOL

Black Day, your pictorial was actually pretty helpful, thanks again.

Jamie, the article at Investopedia was REALLY helpful, I also wish to thank you again for your input.

FXCM has themselves a permanent client...........


Eternally grateful.
D.

The last signal to buy EUR/USD proved utterly wrong to some traders despair (not mine). The SSI is good in telling traders positioning but the comments which follow such as "indicating more USD losses or gains is totally false. The EUR/USD lost 500 points this past week, with central bank intervention no doubt.

Example: If 80% of traders are long USD, the way the market gets more shorts is to continually keep the USD rising. As a result more traders go short and balances the equation back to 50/50 (long/short ratio).

A recent example is the GBP/USD. The ratio should stand now around 65% long as a result of a declining GBP in the past week. More traders are now long as oppose to short. If the GBP keeps declining we will see more traders long GBP/USD. The same holds true for all the other currency pairs. The SSI needs a better gauge for pulling the trigger on trades. I have yet to see the SSI get it right after about a month of monitoring the SSI. The performance is totally dismal in the short term.

EURUSD 1.34711 -1.09 48% Bullish
GBPUSD 1.98383 1.38 58% Bearish
USDJPY 114.559 2.04 67% Bearish
USDCHF 1.20575 2.47 71% Bearish
USDCAD 1.05952 3.01 75% Bearish

GBPUSD - The ratio of long to short positions in the GBPUSD stands at 1.38 as nearly 58% of traders are long. Yesterday, the ratio was at 1.37 as 58% of open positions were long. In detail, long positions are 7.2% higher than yesterday and 26.6% stronger since last week. Short positions are 6.9% higher than yesterday and 55.7% weaker since last week. Open interest is 7.0% stronger than yesterday and 28.6% below its monthly average. The SSI is a contrarian indicator and signals more GBPUSD losses.

First, Thanks for your comments.

Second, the SSI is far from being 100% correct and can in many circumstances mislead you in the future direction of the price action. However, we are confident the best way to interpret the numbers is using a contrarian stance. We backtested the indicator over the last 4 years and across 5 different currencies and results were clear enough for us to launch a Managed Funds based on this proprietary customer flow information.

For information on an FXCM Managed Fund that takes advantage of the SSI, please review our Sentiment Fund at: http://www.FXCMManagedFunds.com.
Thank you

The COT for the week is posted now at http://www.dailyfx.com/story/chartin...625521507.html

Jamie, to piggy-back onto something I thought was interesting on your article:

Notice how the jump in "Weak dollar" searches on Google turned into what was the 2006 top in the EURUSD. I think we're seeing something similar in more recent weeks, with the EURUSD substantively lower as "weak dollar" searches peaked. I think this analysis may be a bit dated, as I think we have seen the extent of the sentiment-driven Dollar correction. But it should be nonetheless interesting to watch Google Trends moving forward.

How this corresponds with actual positioning and other sentiment data will be key in judging the future direction of USD currency pairs.

Attached Images

 

According to our dealing data, 73% of retail traders are long USDCHF (long to short ratio is 2.71). However, since last week, retail has been selling the USDCHF (short positions are up by 51.6%). When retail is long but reduces its exposure, the long term direction remains bearish but the market might have some upside in the short term. The SSI gives us a MEDIUM SIGNAL TO SELL USDCHF.

More SSI Signals

EURUSD 1.34830 -1.08 48% Bullish
GBPUSD 1.98997 1.34 57% Bearish
USDJPY 115.046 2.09 68% Bearish
USDCAD 1.05465 3.20 76% Bearish