Been trading for a while now and keep hearing about market sentiment indicators. Some traders swear by them but I’m not convinced.
What tools actually work for measuring this stuff? VIX, news sentiment, social media buzz? Or is it just another way to overcomplicate things?
I’ve used sentiment as a filter for years. Works great when you time it right.
DXY correlation with risk sentiment is massive. When dollar strength goes against typical risk flows, something’s changing. Like stocks rallying while USD keeps climbing - that move won’t last.
Bond yields beat VIX for forex every time. TLT movements show where smart money thinks rates are going. I’ve nailed some solid EUR/USD and GBP/USD reversals just watching the 10-year.
Here’s what people miss - central bank speak flips sentiment instantly. Powell mentions dovish policy and everyone goes risk-on. I keep a Fed speech and ECB meeting calendar. Trade the aftermath, not the initial spike.
Don’t chase sentiment extremes. Wait for them to hit your technical levels first.
Market sentiment works best when you keep it simple and use it to confirm other signals, not as your main trade trigger.
I track VIX and watch currency flows during news events. When major economic data drops and the market overreacts compared to what actually happened, that’s pure sentiment driving price.
Timing matters most - wait for the emotional move to peak. Let price show you the panic buying or selling is done, then take the opposite side with solid risk management.
Price tells you sentiment faster than any indicator.
COT data’s solid but it’s weekly - by the time it’s out, the move already happened.
I just watch price action at key levels when everyone’s panicking.
Sentiment trading works, but you’ve got to be picky about when to use it. My results have been all over the place.
VIX is the only one I really trust. When it jumps above 30, I start hunting for reversal setups. Nailed it during the COVID crash and several times after.
News sentiment tools? Complete trash. Way too much noise and they’re always behind price anyway. The sentiment shifts after the move’s already started.
What actually works is watching price action at key levels when sentiment goes crazy. Everyone’s panicking about EUR/USD but it won’t break support? That’s way more useful than any fancy indicator.
Don’t trade sentiment by itself though. Use it to back up what your charts are saying. When they both agree, those trades usually pay off.
COT reports are the best for reading sentiment. I check positioning data weekly on major pairs. When commercials are heavily short and specs are loading up on longs, that’s my contrarian signal. Forget the fancy indicators. Dollar index, bond futures, even crude positioning moves forex way more than social media noise. I’ve made good money fading extreme positions when they hit technical resistance. Just need patience - sentiment can stay irrational longer than you can stay funded.