Here is the Speculative Sentiment Index (SSI), an indicator of positioning developed by FXCM to help traders in their positions.
What is the SSI ?
The Speculative Sentiment Index (SSI) is a tool offered by FXCM. Unlike many of the other indicators that use past data to try to understand the trends, the SSI analysis of the current data and is considered a leading indicator, that can often predict a change in market direction before the movement is triggered.
Buyers and sellers
The SSI focuses on the buyers and sellers, producing a ratio to indicate how the traders behave on a particular pair at a given time. Positive ratio indicates more buyers than sellers, while a ratio of negative shows the opposite.
For example, if the indicator is -4.59, this means that it is 4.59 sellers on the market for 1 purchaser, and shows that he has an overall preference for selling in this particular time. Each trader is taken into account only once, regardless of the size of its position.
Generally, the SSI gives a strong signal when it appears above 2 or below -2. Readings below this range are considered to be low.
An indicator of against trend
The SSI is considered as an indicator of » nuisance «, which means that the trader should trade the opposite direction that points the indicator. Therefore, if the indicator shows that there are more buyers than sellers, this can be seen as a signal of overbought and that it might therefore be downward pressures.
The evolution of the SSI
Another method of using the SSI is to monitor its evolution. For example, if the SSI goes from 5.6 to 1.6, this could signal a change of trend and traders will begin to buy. Similarly, if the ISS passes from -4.2 to -2.2, the trader can consider this as a sell signal.