DailyFX.com -

Talking Points

  • SSI is a trading tool comparing long and short positioning
  • Scalpers will use SSI extremes to identify strong Forex trends.
  • At -4.12 traders will look for the GBPUSD uptrend to continue

SSI (Speculative Sentiment Index) is a proprietary trading tool to FXCM, which is used to determine trade positioning. The idea behind sentiment is to see if more traders are long than short, then making an educated trading decision based on current market trends. Currently the GBPUSD is reading at an extreme -4.12 SSI level. Today we will examine exactly what this may mean, and how this data can be useful for traders going forward. Let’s get started!

Learn Forex – Current SSI Readings

GBPUSD Sentiment Moves to Extremes

SSI and the Pound

As of this morning we can see in the chart above that the SSI reading for the GBPUSD has reached an extreme reading of -4.12. Since SSI is reading negative, this means that short positions out number long positions. The actual number represents there being nearly 4 positions short for every position taken long.

The main reason that the SSI reading has reached these extreme negative levels is primarily due to the currency pair’s strong uptrend. Below you can see price action for the past month using a daily chart. During this period the GBPUSD has rallied as much as 370 pips! As traders attempt to fade this strong trend, SSI has become more negative while the pair continues to push towards higher highs.

Learn Forex – GBPUSD Daily Trend

GBPUSD Sentiment Moves to Extremes

(Created using FXCM’s Marketscope 2.0 charts)

Trading the GBPUSD

Below we have combined both price and SSI to see how the two data points relate over time. Putting both aspects together we can see that SSI increases in value, during periods of strong trends. Knowing this, traders should consider SSI as a contrarian tool. As short positioning increases, this can be taken as a strong signal for a trend continuation. Knowing this, traders can then proceed to look for new buying opportunities using the strategy and time frames of their preference.

As with any indicator or trading tool, SSI should be monitored as the market progresses. This can be done through DailyFX PLUS where SSI is updated twice daily. If position continues to be largely net short, then this can be taken as a confirmation to the continuation of the current downtrend. Conversely, if SSI begins to advance and net short interest declines this could be taken as a signal that the current uptrend in the GBPUSD is at least temporarily coming to a pause.

Now that you are familiar with SSI, you can begin working this trading tool into an active strategy. You can get started analyzing price along with SSI with a Free Forex Demo with FXCM. This way you can develop your trading skills while tracking the market in real time!

GBPUSD Sentiment Moves to Extremes

Related Articles
  1. Forex Fundamentals

    Chinese Yuan an Unlikely Reserve Currency

    As the world's second largest economy, China's challenge to America’s dominance includes a push to make the yuan (RMB), the world’s reserve currency. Whether it can do that now is unclear.
  2. Economics

    How Currency Enforcement Helped Sink The Trans-Pacific Partnership (TTP)

    One particular barrier to trade that has received much attention of late and caused delays in negotiations of the TPP is exchange-rate manipulation, by which a country artificially devalues its ...
  3. Forex

    Top U.S Forex News Sites

    Breaking news moves forex markets. Here are the top U.S. sites for tracking forex news.
  4. Investing

    Financial News Comparison: Bloomberg Vs. Reuters

    Access to financial information has grown with the expansion of digital news. Bloomberg and Thomson Reuters lead the pack, claiming a majority of the business information market.
  5. Economics

    Who Benefits From South Korea's Lowered Interest Rates?

    South Korea is the latest country to cut interest rates in an attempt to stimulate economic growth.
  6. Forex Education

    The Top Uses For P2P Currency Exchange

    Peer-to-peer (P2P) currency exchange networks offer a viable and cheaper alternative for buying and selling currencies.
  7. Forex

    Steps To Open An Offshore Forex Account

    Here is a simple breakdown of how to open an offshore forex account for US-based users, including legal requirements.
  8. Entrepreneurship

    Top Forex Trading Apps

    A brief overview of the top apps that help forex traders with on time information, charts and more.
  9. Investing Basics

    The Risks Of Buying Bitcoin

    Virtual currency is probably here to stay, but what about Bitcoin specifically? Does it have a first-to-market advantage? What are the risks involved?
  10. Forex News

    How The Forex "Fix" May Be Rigged

    When it comes to forex, some types of "fixes" are legal. But some really aren't.
RELATED TERMS
  1. No results found.

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!