As a mathematical tool it shows traders’ sentiment relative to their past year net positions which is based on net open interest and net number of traders.
Blue area means the sentiment is bullish and red area means bearish sentiment.
If hedgers are bullish then we as speculators should be bearish and vice versa. But in case of speculators, we follow them.
Now that we have assessed the sentiment, we can use technical analysis to find the best timing for our entries and exits. You may need refinements on lower time frames.
Knowing about medium to long term sentiment can help you in your intraday trades too and you can manage your trades more efficiently.
Do not forget the traders’ category. As retail traders we have to trade with the speculators and against the hedgers.
This is weekly gold chart with money managers’ index overlayed.
Money Managers are large speculators in commodity market and we have to follow them.
Look at how many bullish set-ups we could find in the blue areas and vice versa, bearish set-ups on red areas.
Another example for index overlays, this time on EUR chart.
The index is based on Asset Managers positionings who are the large speculators in financial markets.
Look at how amazingly the index could highlight the sentiment based on open interest data.
Never forget, this indicator does not include pricing data at all.
