Home Forex Trading Analysis Market Sentiment Analysis 7 - Using Long-Short Percentages to Determine Market Tops and Bottoms

Forex Trading Analysis Market Sentiment Analysis 7 - Using Long-Short Percentages to Determine Market Tops and Bottoms

We already know how to determine extreme cashback cashbackforexprofitcalculatorexpipcalculator sentiment, whats the next step? Again, not every time there is extreme market sentiment it means the market will form a top or bottom, so we need a more precise indicator to calculate the cashback forex of speculative longs or shorts will be more helpful for us to measure whether the market is at a top or bottom The formula for calculating the percentage of longs and percentage of shorts is as follows: percentage of longs = number of long contracts / (number of long contracts + number of short contracts) Short Percentage = Number of Short Contracts / (Number of Long Contracts + Number of Short Contracts) To better illustrate, lets go back a few years and see what was happening with Canadian dollar futures at cashback forex calculator Online time By looking at the CFTC position report for the cashbackforexcalculatorOnline ending August 22, 2008, we find that the net speculative short position as of that week was 28,085 contracts for the week ending March 20, 2009 Based on this information alone, you might well say that it is very likely that the market formed a bottom in August, as we see that there were more speculative shorts present at that time but, wait a moment and easily conclude that this might not be true, right? By looking deeper, we found that the number of short contracts for the week of August 22, 2008 was 66,726, while the number of long contracts was 38,641. By doing the math, we found that the percentage of shorts for that week was 66,726/(38,641+66,726), or 63.3%. This means that the percentage of short positions for the week reached 32,655/(8,715+32,665), or 78.9% What does this mean? It means that a market bottom is more likely to form when the short interest ratio reaches 78.9% than when it reaches 63.3% As the chart shows, a market bottom did not form around August 2008, when the CADUSD traded roughly at levels around 0.9400 The exchange rate continued to fall over the next few months until the week of March 20, 2009, when the CAD short interest ratio reached 78.9%. The CADUSD bottomed out at 0.7700 and then, what happened? The Canadian dollar started to stabilize and rally, and that was the bottom of the market, right?

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