Retail sentiment is the measurement of the overall long/short positions on a forex pair. Historically, the crowd is rarely correct picking direction. They will usually try to trade a reversal or catch a big swing against strong trends. Although this type of trading can work, it is not often that they are accurate. Sometimes, retail is too early, too late, and even flat out wrong. With that said, the EdgeFinder uses an inverse score to which way the crowd is trading.

The EdgeFinder considers retail positioning a contrarian signal if positioning is above 60% long, or below 40% short. Meaning; if retail positioning is greater or equal to 60% long, the EdgeFinder will produce a -1 score for retail positioning. If retail positioning is below or equal to 40% short, the EdgeFinder will produce a +1 score for retail positioning.

Here is how we score retail sentiment:
The retail sentiment metric displays data based on the positioning of retail traders. For us, this is a contrarian signal producer.

If retail traders are 60% long (or more), then this is a bearish signal (-1). If retail traders are 40% long (or less), then this is a bullish signal (+1).
So the overall, score for retail can only go from -1 to +1.

For scoring indices, metals, and commodities, we implemented a slightly different approach than retail sentiment reported by brokerages and online forumes. The reason for this is that we found the data to be less reflective and less reliable when compared to the options market, which showcases the sentiment of the market using immense daily volume.

We leveraged the publicly available daily options market volumes to identify heavy demand for puts (bearish bets) or calls (bullish bets) on the options chain for SPX, GLD (Gold ETF), USO (oil ETF), etc.

We used what is referred to as the put to call ratio, which helps to visualize the ever-changing demand for puts or calls day to day.

If the put to call ratio is very high, that represents a strong demand for puts in the options market. We view this as a contrarian signal, and will assign a +2 score to the associated symbol.

If the put to call ratio is very low, that represents a very strong demand for calls in the options market. We view this as a contrarian signal, and will assign a -1 score to the associated symbol.

The reason that we assign a -1 score rather than a -2 score is due to the long term upward drift of appreciating assets. The EdgeFinder's scoring algorithm is designed to be more selective about bearish biases on stocks/gold/commodities.

The EdgeFinder gives directional bias and is not time based. Therefore, there is not a specific time frame that is best for the EdgeFinder.

Forex Majors:
AUDUSD, NZDUSD, USDZAR, GBPUSD, USDJPY, USDCAD, USDCHF, EURUSD

Forex Minors:
AUDCAD, AUDCHF, AUDJPY, AUDNZD, CADCHF, CADJPY, CHFJPY, EURAUD, EURCAD, EURCHF, EURGBP, EURJPY, EURNZD, GBPAUD, GBPCAD, GBPCHF, GBPJPY, GBPNZD, NZDCAD, NZDCHF, NZDJPY

Metals:
XAUUSD, PLATINUM, SILVER, COPPER

Energy:
USOIL

Indices:
GER30, US30, SPX500, US10Y, NAS100, JP225, UK100, RUSSELL

Bonds:
US10Y

While the EdgeFinder is not necessarily realtime, it is fully automatic in its data collection. The EdgeFinder uses a variety of data sources and inputs. Most price data updates are on a 15 minute timer, while economic data updates every few hours. COT data updates weekly (as it only releases 1 time per week), and retail sentiment updates every 30 minutes.