Looking for alternative market sentiment tools

Hi,

Any you guys use useful tools to guage market sentiment apart from the news, COT reports and charts?

Thanks.

Gauging market sentiment is kind of an art, i wouldn't say their is a scientific approach to it. The best thing to do is to have a foundational understanding of economic principles. Then see what the market is responding to and how it is responding to it. Browse all the related websites for articles and information pertaining to the security as well as upcoming data releases that should affect it. Keep a daily log of that security for a month or so and jot down all of the factors that you think are influencing it. At the end of the day go through how price reacted to them, after a while you will get an understanding which things market participants are focusing on.

Man I would love to hear what other people have to say about this as well.

At the moment I use COT reports, Daily FX's SSI, and Oanda Forex Labs Position Ratios.

I agree with loveforex in that gauging market sentiment really is an art. Very subjective. People will look at the numbers from the COT reports and come away with different opinions.

Apart from the obvious movements we see like NFP/ISM/GDP figures it really is difficult to see what reports people are looking out for imo.

Here is a question:- is their a market or currency pair like AUD/JPY or CHF/JPY that doesn't involve the dollar or the euro less prone to fundamentals than say the majors?

If there was a market that had low fundamental reactions wouldn't that make life a lot easier and take a huge chunk of learning out of the equations. We can never avoid fundamentals completely however finding a more technical pair is easier i heard this once from Chris Lori webinars.

Sentiment is something that is happening NOW, in the moment. It could change in seconds when a central banker would say something unexpected. COT report is about position data for the last week and gets to you 3 days late. Maybe you can make money by gauging a bit longer term market bias and taking contrarian view when market is heavily oversold/overbought. but i don't see how a report can tell you the current sentiment when all it contains is position ratio of long/shorts in the market 6-7 days ago.

Any tool that tells you about position ratio's of a certain brokers clients like Oanda and social aggregating websites like myfxbook is based on positions of retail traders. Now i dont think many would be interested in basing their trade decisions on that info.

Im not saying that you cant make money using these tools, but the question is about gauging sentiment,

Sentiment determines what will positions ratio's of speculators will look like NOT THE OTHER WAY AROUND. (except when a market is heavily stretched and cant move further before a hurtful squeeze but that still at times need a catalyst)

Every day in the market there is a story that influences the expectations of traders of what market might do that day. You need to know that story and its much less complicated than we have made it sound. But there is another thing you should know.

Its no longer about sentiment anymore as much as its was since 2008 up until few months ago. Back Then you would simply buy risk assets and sell safe heavens when it was risk on and vice versa with risk off, so yeah its was really important to know the market sentiment. The whole dynamic started as very simple and easy way to trade. First market would keep falling for weeks when risk was off, than it shrinked to days, sessions, hours and in the end the market would be risk off one moment and risk on the second. Rise of high frequency trading bots also kept reducing what a human could get out of a RORO move.

But now its changed, the correlations have broken. Before EUR/GBP/AUD/NZD/ were seen as risk (high yielding) assets and moved in tandem, USD/JPY/CHF were the safe heavens. A better than expected US data would make Risk assets like EUR rise and USD falling and vice versa Now you see USD rise and EUR fall cause its no longer about risk but pure fundamentals. Dynamics have changed to the extent that even EUR and GBP broke off with commodities ccy's(nzd/aud/cad).

Who will move first to roll back money printing and start raising interest rates is all people are guessing and betting on, The size and side of their bets depend on info about economy which you know is the economic data. The current bet is on the US cause of recent talk of fed about tapering cause of recent healthier data compared to other economies and in the longer term about US getting energy independent with shale and whole other stuff you hear everyday.

Market is confused about whether if Feds will taper or not, same with ECB will cut rates or not. Every US and EU data fig thats comes out tilts market bias into one direction or the other everyday. These data figs (specially mid/low impact ones) dint moved market much after 2008, because that was all about RORO and later got worse with EU crisis when a greek politician could move market with his mouth. Even the NFP number was so tricky and hard to trade with people thinking about its effect on RORO and the implications on QE2/3/4 at the same time, and everyone would get their stops hit. Now even housing, weekly jobs and PMI's (remember gbp in march/april) could set the tone for the whole session.

I have moved very far from the original discussion and its 3.16 AM here and i know the post is a bit incomplete (maybe i might add later), so i can only hope it made atleast some sense.
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Thanks guys really great info especially Nasir. So, do you think knowing how market participants are reacting towards to news reports like the PMI/GDP figures key to understanding short/long term direction?

This. In the late 80's, early 90's it was common to see huge differences between interest rates - sometimes Australia would be 10% higher than Japan etc., and central banks would regularly change cash rates by a whole 1% without warning. Trading currencies back then was simply a matter of following risk sentiment. Now interest rates are all within 3% of each other and barely move, 'risk on/risk off' is still discussed by analysts but the effects of RORO are generally swamped by other factors which are much harder to predict.

So, I guess you could say the markets are far more difficult nowadays than in previous years? 2008 I heard was a walk in the park with the recession is that true?

I'm not necessarily saying trading is more difficult now, it is driven by different fundamental themes than it was then. In the 1990s global macro traders were the rockstars of the currency world, in the 80's it was long term trend followers. 2008 was a walk in the park for people trading medium-term trend following systems, just look at some of the older threads here. A lot of them inexplicably stopped working as interest rates flattened out, to be replaced by technical countertrend systems. When market conditions shift again those threads will disappear too, and most likely their followers will never know why their successful systems gradually stopped working.

great post !

the way in which i trade is based on this information and it has certainly been less clear with as you say individual currencies being effected by releases of what was once less significant release.ive found this to be the case more so in the last 12 months,ive seen much less harmony across the overall market.although at times this can still be seen and capitalized on .

what dosnt change is the overall equilibrium .these corrections still present themselves the correlations are more scrambled and require more thought.im not surprised by this market in present times with the multitude of individual issues.but i believe things will settle in time.in the meantime im more selective in my trades.

when agreement takes place in these unstable and less confident times they have great strength and a more reliable outcome.so turning a negative into positive ,its clearer when not to trade and more rewarding on the times to enter the market,certainly more patience is required which for many can be a problem..

getting back to the original question ,i use the value change of a basket of currencies and a basket of indicies.this can be done manually or through excell.this can if you know what your looking for the most upto the now moment information regarding momentum, harmonic sync,the overall market s/r ,false b/o,delayed b/o and to a degree volume.

as mr Kkan has described its not as clear as it once was but as ive said one needs to be more selective

dice

Im not saying that what you guys here searching for is not worth it or wont work or anything. But just advising to remain vigilant with changes in dynamics of how different instruments respond to different market conditions. Just like your technical indicators, MA's work excellently in trending conditions but will burn your account in ranging conditions, Oscillators work great at pointing reversal in ranging markets but fail in trending market and same could apply on on Money management and trade management strategies.

Thats why many traders end up lose or break even in long term cause what was making money for them for one period in certain market condition won't work when the next transition happens. I know people who used to trade yen pairs based on SR in DJIA, they simply bought xxx/yens when DJIA hit a support and vice versa, worked out great in 08/09 but then failed even so miserably after.

Personally i think market lately have been great. You had solid trends in Yen's, pound fall was good and recently Aussie. Other than these trends, if you just look at 1D charts of eu and gu, market normally gets into a range and then breaks out with a fundamental catalyst like data fig's or speeches etc. These breakout takeout 2-3 Daily SR levels in a day. You just have to wait for ranges and look at calendar to anticipate what could shake out the balance of the current supply and demand structure to make price go in a one way street. After that you can play breakouts in smaller time frames even down to 1M.

To break it down further and make sure you are getting in at a right price and right time (the timing) which allows you small stops, Mark where stops are, where are the heavy supply/demand zones and at what hours of the day market usually thrusts up or down with a determination. Timing is very important, you can know what will price for the whole day but end up not making what you should have or lose, cause you just could't time it.

I think that would complete my last post.

Goodnight and good luck.
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Great posts.

OP, you can also try cluster indicators, which basically show how that certain currency is doing comparing to other currencies. There is an MT4 indicator somewhere on the forums that does it. This should help determining sentiment. As I have not ever used it, I cannot comment on how well it performs, it just came to mind when I saw the topic.

I personally just watch the price, for as long as needed, until I start feeling its mood. Might sound strange, but this has worked for me for the longest time. Basically, just watch it tick up and down, until you start seeing that it actually wants to go in a certain direction. Very hard to explain. I'll think on how to form the wording when I get home

Open charts of Gold and a major stock index. Make sure both are measured against the same currency - eg gold/USD and SPX500. Superimpose one chart onto the other and you have a crude indicator of risk sentiment. Gold starts climbing against SPX = risk off. SPX climbs against gold = risk on. Compare this to movements in risk sensitive currency pairs and you'll see what I mean.

watching the bid and ask price is an exellent way of of entry or scalping levels.as you say if you study it long enough you can determine resonable bias, it leaves clues ,you can see how it ticks back and forth soaking orders momemtum can also be seen the lowest tick down and when it gaps up and failing to tick the low.i traded purely from quote for somtime and had a very high hit rate i could scalp 20 trades in succsession with out taking a loss allways closing trades that returned low tick at b/e somtimes taking the spread.

it takes great concentration and very fast reaction,i found it to demanding in the end and modified it somwhat.i use more for entry from given reference points and also watch a basket of quotes for a more general perspective of the moment.infact i would say one could trade a given pair using only the ochl ,the bid and ask along with the quotes on related basket with out ever opening a chart,

dice