Okay so this SSI data released by FXCM each week has got me going crazy.
They say its contrarian so if 3 times as many people are buying AUDUSD then I should be selling it. Basically if 95% of people lose money then I should do the opposite…
Well firstly I wasn’t sure this is true. i have read that the majority of retail traders actually trade in the right direction but lose because of not letting profits run and staying in losing trades too long.
Source Forex Education: Why do Many Traders Lose Money? | DailyFX
This idea proves this SSI logic to be completely wrong.
However… it looks like the proof is in the pudding and the SSI is right.
You can then see the chart which indeed shows a downtrend all year for AUDUSD.
I wonder to myself how on earth are so many people buying it into a downtrend.
But then I realized that the data is only useful for long term traders. For example the AUDUSD has been in a 2 week retracement so if i’m a day trader I indeed want to be buying AUDUSD not selling it.
This means that I do not always want to be doing the opposite to most people… The SSI sentiment appears to be focused on the long term which means little for day traders…
What I find amazing is that when the AUDUSD downtrends in the year the amount of buying goes up compared to when the AUDUSD ranges…
This defies logic. Or does it!
I thought of only one explanation for this. People are all trying to pick bottoms to get in reversals and they are always wrong. The trend is indeed your friend. This explains what we see here.
If you look at both pictures here you can clearly see the increase in buying during downtrends and reduced buying on retracements. I have marked with red lines where the time frames align.
What do I conclude from this?
-
Following the SSI contrarian logic when day trading is not a good idea. As I said, a retracement could be weeks long so there will be plenty of buying opportunities there when looking to open and close trades in the same day.
-
I can only assume the majority are trying to pick bottoms all the way down…
Does any one know whats really going on ?