Client Sentiment & Why Retail It's Usually Wrong!

Just a quick tip if anyone is interested in the 'Sentiment' Indicator' on etoro, IG or any other trading platform. At the moment, sentiment on the $NSDQ100 on etoro is net short with 57% of people shorting an incredible rally following the US election. Why are they shorting? I can't give a definitive answer but what I generally hear is 'It's gone too high', 'It has to go down'. The question you have to ask yourself is 'Why?'. Why does it have to go down??

There is a school of thought that you should do the opposite of the sentiment. So as it's net short, you should be long. The theory behind it is most retail traders lose money (75% in etoros case), therefore they are wrong more often than not. Retails traders also inherently try to pick tops and bottoms of markets as a way to try and get the 'whole move'. I've attached a link to a DailyFX article which goes into more depth. They discuss the sentiment indicator which is used on IG markets but the same can be applied to any retail trading platform. I would suggest sentiment mostly applies to FX and Indices as stocks are naturally long, but I have noticed stocks like $TSLA (Tesla Motors, Inc.) have generated a lot of short positions on etoro in the past but again the market keeps ploughing higher and higher. It's a very good read and highly recommended if you're a new trader. Have a good weekend!


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