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Retail SENTIMENT USING THE PLATFORM MYFXBOOK - part 2

January

Monday

January

01

1999

at

10:00 AM

(timezone)


Welcome to another blog post.

In this post, I will continue the discussion about Retail Sentiment as presented on myfxbook.

In the previous blog post  - part 1 Retail sentiment using myfxbook - we took a high level helicopter view to understanding the sentiment data myfxbook have made available to traders, and we considered the initial entry points for the analysis of the data and statistics available on their website.

Remember, the data is presented per currency symbol and includes readings for both Major and Minor FX pairs as well as Gold and some other commodities. There is a lot of data available across a multiple of symbols, which should entice traders to at least take a look at what is on offer and satisfy the most demanding of traders who for example only like to trade a handful of or a specific pair or instrument.

Consider also,  that myfxbook is collecting and disseminating data from a host of brokers who provide real time information about their clients positions and this gives a fascinating insight into the world of retail sentiment. It allows you to see over the shoulder of your compeitir trader. Can I provide a list of participating brokers - no not at the moment, but I will attempt to attain this information from myfxbook.

We also covered the fact that the retail interest in FX has grown exponentially over the last ten years, to the extent that IC Markets which is one of the brokers I use, have a volume of around $1.39 trillion per month. The retail element of FX is way more important to the banks than it was previously and there is a whole industry that has grown up around retail FX.

Tip: Retail Trader Sentiment - How can this help us? If you know what your competitor trader is doing, where his position is placed and which direction he favours long or short this gives you the trader a huge edge. Notwithstanding the fact that most retail traders lose money,this is equivalent to a chess game and understanding where your opponent will move next.

MYFXBOOK SENTIMENT DETAIL AND ANALYSIS

To access the site you should go to the following address, https://www.myfxbook.com or simply click on this link and a new web browser page will open up on the correct page.


MyFxBook URL

Once you have arrived on the home page of myfxbook.com Now click on the menu item sentiment and a new web browser page will open up on the correct page.


Myfxbook sentiment menu ietm

The main details of the FX pairs that are available for sentiment analysis are noted on the sentiment page and it is from this page that the trader may  progress further to request more details on the sentiment of the pair(s) of interest. 

The Sentiment Page Detailed Analysis

In the previous blog post  we looked at the data which is available on the sentiment page namely:

- Symbol

- Community Trend

- Symbol Popularity

- Average Short Price / Distance from Price

- Average Long Price  / Distance from Price


MyFXBook screen shot of example sentiment page


Symbol Analysis

If you would like to further analyse a symbol which s of interest,  for example EUR/USD,  simply click on the symbol and a new page will open which provides details of the available sentiment for this currency symbol. 



Myfxbook symbol position analysis

The EUR/USD Sentiment is provided as followsf:

Percentage LONG traders
Percentage SHORT traders
Volume SHORT in lots
Volume LONG in lots
Positions SHORT
Positions LONG

This information is very valuable, however it becomes even more powerful, if you are made of where all of the above figures stand on a historical basis.

Percentage LONG/SHORT traders

It goes with out saying, that however you slice and dice the long/short percentage trader numbers the figures will always add up to 100%.

The impact of the current long/short figures should be to look at the current numbers on a historical basis, and to perform a look back process of a day, week, month or even several years. Only by doing this can you establish whether or not either the long or short percentages currently being provided should be considered historically of importance,extreme or ignored

Example: If the normal everyday reading of a pair is that Long are 60% long and 40% short, and this is measured over the period of a year for example then a sudden reading of 80% or even 90% long should make you take notice and look further into the price action and levels.


Myfxbook Percentage of traders long versus percentage of traders short

Volume by Lots


Similarly, the volume by lots of shorts to longs can be a very interesting figure , not only on its actual or current to historical comparison, but on the volume compared to the overall volume of all pairs within the FX market. 

For example in the second case the EUR/USD is one of the most popular symbols or instruments that is traded, if the case were to arrive whereby one of the FX minors temporarily had  a total volume of longs and shorts, which exceeded that of the EUR/USD then again this would be sign that traders should take notice and investigate the pair further.

In the sceenshot below you can see that during the period from March 2023 until April 2024 (blue scale at the bottom of the chart) there were two very large spikes to the upside in volume as measured by short lots or log lots  The Right hand scale enveloped by a red box details the levels, which range from zero to 80.000(eight thousand lots)

On the first occasion, where the spike was due to shorts, the short volume spiked up to the level of around 70.000 (seventy thousand short lots)

The second spike was due to longs and came in at around 60.000(sixty thousand lots).

What we can say about this analysis is that for the period being measured both events warrant further investigation.


Myfxbook volume

Volume Analysis by Lots Further Detail


In the next screen shot I have included the actual price action that has taken place at the volume areas to see if we can learn anything about what happens to price at the extreme price levels.

What can be seen at the extreme short position spike is that on the build up to the spike traders became more and more short and price kept on rising. At the spike there was a reversal, if you look left this was at a significant level and the shorts started to close their positions. At this point the market started to sell off.

Similarly the spike in longs was firstly accompanied by a movement in price to the downside as longs  entered more and more contracts and more and more traders attempted to fade the market. And once price a certain level - also look left to see the October lows - the  longs started to close their position and at this point price started to move to the upside.

Notice how some moderately extreme readings in the Autumn of 2023 where there were several spikes to the upside for shorts did not result in the market actually turning until  the third and weakest push in volume.

Below,  I will analysis and explain what I see going on here.


MyFxBook Volume Analysis EUR/USD

Volume of Positions


Above we looked at volume by lots. In the screen shot below,  I will look at volume by number of positions.

Note that both of the spikes we saw previously on this EUR/USD price analysis are still present, on the volume by lots screen shot are still present, what is new,  is that there is more 'noise' due to additional smaller or intermediate size spikes that make the chart busier and more complicated to read.

This additional data has an advantage however. What the screen shot of the chart below demonstrates by presenting the data as positions, not lots, is the activity of the vast majority of very small retail traders, those who are likely to be the most under capitalized and inexperienced,  who trade very small lot sizes and positions.

A further reason why this data is more interesting is that when we look at number of lots, the better traders will be trading more lots than the more inexperienced or less good traders and this hides some of the mistakes of those less experienced traders.

When you count by position, each and every position, however small is counted up to produce the total number of positions value, demonstrating and presenting  the data like this allows us to see beginner mistakes. I will explain.

There is a phenomenon whereby traders mostly like to fade the market, these are the 'what goes up must come down type of trader' they believe that breakout trading or buying high and selling higher does not work, or at least it does not feel comfortable to them, ,so they bet against the trend, double down, martingale, try to get even with the market and undertake similar strategies, desperately waiting for the turn in the market to happen. 

Unfortunately, many of these traders will have to close out their positions at a loss, some may even receive a margin call or have their accounts wiped out. In terms of classical technical  analysis and indicators, these are the traders who will sell the overbought RSI or Stochastics, adding to short positions as the price goes higher,  only to seethe price moving yet higher still,  until they are forced to close their position, or their broker takes them out  due to a margin call.


Volume of shorts to longs measured by positions

Using the Sentiment Data


As I have shown there is veritable mountain of data which MyFxBook have made available to us and the question we all want to know is how to use the data.

There are various ways we could look at the data as follows:


Community Trend Above 80%
Above Average Symbol Popularity Based on Historical Levels Using the Daily Time Frame
Long/Short Volume of Lots or Positions at Historical Levels Based on a Look Back Over the Daily Time Frame
Intermediate Long/Short Lots or Position volume spikes with trending market in the opposite direction or the Community Trend Direction Frame

Community Trend Above 80% 


A community trend, which is above 80%, for either the long or short value,  is of interest to us as traders. 

The next step in the analysis of a symbol which meets the 80% criteria, is to check out the number of positions and lots which have been opened for the pair.  We need to see a minimum of 1000 lots and 5000 positions in the currency symbol which is above 80%, the  currency which forms the other part of the pair and which carries the less than 20%  figure is not of importance.

The reason we need must have a good volume of both lots and positions,  and a community trend of over 80% is that we need to ensure that a sufficient number of traders are involved in the trade and that their closing out of their open trades will cause the desired effect and the price will move accordingly.

So how can this information be used. Read on below.



Using the Community Trend >80% and Lots/Positions 


Please study the above screen shot and together we can analyze what this screen is showing us.

Firstly, let remind ourselves that we are looking at a price chart of the EUR/USD on the daily time frame for the period end 2022 through to April 2024.  The prices are in the upper part of the chart.

Excessive Spike

Next let us consider the two red rectangles with a short volume spike in the middle of the chart and a red volume spike to the right of the chart. Both spikes break the 60.000 (sixty thousand lots) open on the short side for the red spike and on the long side for the green spike.

The market appears to turn once the level of 60.000 is hit, of course what we cannot see is what the community trend was at the point of the turn, however by eyeballing the first red spike and looking at the green longs at around 10.000 and adding this to the 65.000 shorts we can see that the total volume was around 75.000 at the turn this puts the community trend for the longs well past our required level of 80%.

Of course looking at the chart after the event seeing the spike and the commensurate down turn in prices is child's play - this is not real trading, so what can we use in addition to help with the analyse and hat tip that a turn is on the cards.

- Price Level

- Wait for actual turn

If you look at the price chart to the left of the red spike,  there is a very significant swing high at precisely the same level as the market turn. So  once we are in truly overbought territory with nearly all of the retail traders trading against the prevailing trend, we can tell this from the community trend, and we are gunning for an important swing high on the daily or weekly time frame then this is the point to start looking at opening a short. We should be ready for the final push and reversal at this point

If you remain patient and wait for the price to turn and the number of lots to turn down and the community percentage turn down, then this becomes much easier trading and you will profit from the reversal move.

Weak Spike

If we look at the same price chart and the mauve oblong which I have placed horizontally across the number of lots with a range from around 18.000 to 30.000, you will see that I have intersected weak spikes with the price chart to see the effect of such spikes on price. In general such weak spikes, do nothing to turn the market, in fact they present the reverse in terms of opportunity, they mostly signify a continuation of the current trend, with the weakening of the volume following the spike being the entry signal to get into the trend.

These weak spike and price movements demonstrate on each price push more and more retail traders who are being sucked into the market who want to fade the price  and the market and at each relatively insignificant level they attempt to do so.

The reality of what theses traders are doing is two fold, firstly the very weakly capitalized traders will be quickly stopped out. The continuing movement against the remaining traders will signal over bought for upside moves and over sold for downside moves which will in turn drag in even more traders,  who up until that point have not been enticed into the  market. In this the move will be fueled by more and more traders and market participants convinced that the reversal will happen imminently.

See the video below for detail on both of the above cases and how they may play out.


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