The Retail Forex Trader is on the Wrong Side of the Market Right Now
FXCM has a research division called DailyFX. They have a unique indicator that I like to look at sometime. Any of their live clients have free access to it. It’s called the Speculative Sentiment Index or SSI.
The thought behind it is to see where retail traders are positioned and take the opposite position when readings get extreme enough.
Well, you can see from the SSI chart below that traders are largely still “long the dollar” and short foreign currencies against it. Click on the chart to enlarge it.
While in months past, it was the right trade to make (to be long the dollar vs. foreign currencies), the tables turned going into 2012.
The U.S. Dollar Index broke its uptrend line and the “risk on” trade has come back for now.
This is catching these retail traders off guard and they are feeling the heat right now. As they continue to get stopped out, margin called out or scared out…this will only add fuel to the fire against the greenback and for foreign currencies.
So if you happen to have an account with FXCM.com, you’ll have access to this neat tool from them. This isn’t a sales pitch for them. Rather it’s just a quick note to let you know that the retail crowd has it wrong and they’re feeling the pain.
They’re positioned being long the dollar right now and they should be short the greenback in my opinion right now due to what the charts are showing.
The retail crowd is not great at knowing when a trend is changing. They’re late to switch gears and it costs them dearly. Don’t be one of those. Instead, use the SSI indicator if you have access to it and also watch for major trend line breaks. Always be willing to switch sides of the trade even when it seems that no one else is doing it. That’s the key to winning…thinking independent of the crowd and making the “unpopular trade”.