So far, we have mainly presented strategies based on market technology. Market technology is always important, especially when it comes to finding the right time to buy. But the decision to invest in one direction does not necessarily have to be based on a price chart. In addition to the fundamental indicators, there are also sentiment indicators. What does this mean?
Understand sentiment indicators
A sentiment is a large number of investors or positions that are publicly identifiable. Binary options brokers also provide sentiment indicators. A sentiment expresses the current mood of a population. Broker 24Option, for example, shows the mood of its customers in the form of a bar on the right edge of the chart. In this case, 56% of customers are long for the EUR / USD currency pair.
There are several other sentiment indicators, such as the put / call ratio of the Eurex exchange. The put / call ratio shows the relationship between the put and call options held by Eurex customers. If the ratio is greater than 1, more puts are held than calls. If the ratio is less than 1, more calls are held than puts.
What is the CoT Report?
The Commitments of Traders Report (CoT) is a report that everyone Released Friday by the CFTC agency. The CoT report includes all positions held by investors on the US futures exchanges. These data are published for the purpose of transparency and fairness within the financial markets. The report includes the following groups of market participants:
- The commercial traders
- The large speculators
- The small speculators
All three traders -Groups have different goals when trading, so they are analyzed separately. The commercial traders hedge themselves on the futures markets. The big speculators want to make speculation gains. Since the small speculators form the difference between the two large groups, they are called speculators, but there are also commercial traders among them.
How do you analyze the CoT report?
In order to correctly analyze the CoT report, you first have to understand how to read it. The volume of commercial trader positions is formed by the difference between longs and shorts. These are the so-called net positions. The net positions of the large speculators are determined in the same way. We leave out the small speculators in the analysis, since their volume is usually very small.
After you have determined the net positions of the two important groups, you have to take care of the interpretation. The question is what it means when the net position of the major speculators rises or falls - it depends on whether it is a net short position or whether the longs predominate and it is a net long position, The rest is clear:
- If the net short positions of the large speculators increase, then shorts are increasingly built up
- If the net long positions of the large speculators increase, then Longs are increasingly being built up.
The whole thing must now be brought into line with the price chart.
CoT analysis for gold
The net positions on the daily chart show a net long positioning of the large speculators (upper green line) and a net short positioning of the commercial traders (lower red line). The two groups are generally basically net long and net short. What you should pay attention to are the so-called extreme positions, which are surrounded by an oval circle in the chart.
But the extreme position is not yet the decisive signal, rather the reversal in the structure of the positions is special Importance. The chart clearly shows that the major speculators are reducing their long positioning. In connection with relevant price support, there have been good opportunities for puts in the past few weeks.
For the next few days and weeks it is therefore important to see whether the large speculators continue to reduce their net long position. If this is the case, a further drop in prices can be assumed. Should the reduction in the net long position turn out to be smaller, it might be an indication of weakness in the downward trend (question mark).
The Biggest Kept Secret in Trading
Sentiment indicators generally depress sentiment the market participant. Nevertheless, it has to be noted that, like the price chart, this is only a snapshot. Whether this makes the forecast more reliable depends on the interpretation, which in turn is based on experience. Sentiment indicators can therefore be used rather as confirmatory indicators. However, they do not always offer reliable forecasting power. Would you like to be part of the possible turnaround now? Then trade binary options on gold at 24Option and see how the other market participants have positioned themselves. Trading always involves risk, but traders with 24option have a reputable broker at their side.