Sentiment is the mood of the market: fearful or greedy, crowded long or crowded short.
Retail sentiment
Many brokers publish how their clients are positioned. When a big majority is on one side, many traders treat it as a contrarian signal: the crowd is often late.
The COT report
The US CFTC publishes the Commitments of Traders report every Friday (with data from Tuesday). It shows how large speculators and commercial hedgers are positioned in currency futures.
- Extreme positioning by speculators can warn of a reversal.
- Shifts in positioning can confirm a new trend.
Wick says
When your taxi driver, your barber and your grandma all tell you to buy the same thing, the move might be nearly done.
Key takeaways
- Sentiment shows how crowded a trade is.
- Extreme retail positioning is often contrarian.
- The COT report shows big-player positioning weekly.