Author Bio

The Currensee Market Watch widget indicates how the membership of the trader network is positioned. This is both in terms of long/short as well as in the money or out of it. The further the bar goes to the left of the central line the larger the number of shorts, while the further right the other bar goes the more longs there are in that pair. When the bar is green it indicates those traders are in the money. When it’s red, the traders are underwater on their positions.

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This is one of an occasional series of guest posts by John Forman, Senior Foreign Exchange Analyst for the IFR Markets group of Thomson Reuters and author of The Essentials of Trading. John is a 20+ year veteran of the financial markets. He holds an MBA from the University of Maryland and a BS from the University of Rhode Island, both concentrating in Finance.

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Using EUR/USD as an example, we can see in the graphic at left how there are a lot of shorts, with relatively few longs. The longs, however, are profitable at this point in time while the shorts are in losing money. This is all based on the average entry price for those trades.

Now, it’s early days yet. The number of traders included and the amount of volume covered in the Market Watch figures hasn’t reached a critical mass as yet. Once it does after the site goes live, however, this widget could provide some very interesting insights.

The most obvious analysis of this data is to use the Currensee trader bias as either a contrary or confirming indicator. Generally speaking, retail traders are not very good when it comes to being right about market direction when taken as a collective. We’ll see whether that holds true with the Currensee membership, though. Volume weighted social indicators may end up being a better confirming than contrary reading.

There’s more to it, however.

What I’m going to be very interested to see is whether the figures are going to be useful in a convergence/divergence sort of fashion, and also in a leading/lagging manner. By that I mean if there is a disagreement between the positioning of EUR/USD traders and USD/JPY vis-à-vis their dollar bias what does it mean? And which pair tends to lead the way when the market changes course? And what does the cross tell us?

Let me tell you, as a professional market analyst I spend a lot of time looking at what is going on around the pair I’m focused on at the given moment. I don’t just look at it’s price action and news events. If I did I’d miss what’s really going on. In particular, I look to see if there’s an element not in line which might tip me off that something new is about to happen. Differences in positioning among related pairs could be one of those tip offs.

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