Retail Sentiment vs Smart Money

Sentiment analysis is fundamental in trading analytics. Most investors look to others to see what they’re investing in before they start investing. For instance, there are a plethora of traders who adhere to Warren Buffet’s investments, Jim Cramer’s hot stocks, or Cathie Wood’s speculative portfolio. In the forex world, most traders look at retail sentiment and COT sentiment. By knowing who is doing what, traders can better decide what market they should consider looking at.

When most entities seem to be in agreement with each other, it is usually an indication to follow. This is because large amounts of money are moving in or out of an asset. When retail is majority biased in one direction, it’s usually best to trade the opposite. The reason why is because retail is almost always trading in the opposite direction of smart money.

A way to keep track of institutional activity is to see what they are doing over time. On the Smart Money Tracker on the EdgeFinder, users can track the net long or short positions with price movement each week. This way, money flow and price action are easily compared.

COT Report Data from the A1 EdgeFinder