Forex Trading with Macro Sentiment Indicators. Here’s How to Make +46% in 3 Months
The foreign exchange market (Forex or FX) is the global over-the-counter market for trading currencies. With a $6.6 trillion average daily volume, it’s many times larger than the stock market with plenty of room for everybody.
The FX market is dominated by international banks. Trades are denominated in lots of $100,000 and most traders use the leverage of up to 500x. And while FX pairs’ volatility is lower than stocks yet alone crypto, the unpredictability, the 24/7 hours, and high leverage make it a tough market to trade.
Cindicator’s Macro Sentiment Indicators can also give anyone an edge in the Forex market. This post explains what Macro Sentiments are, how to use them in a strategy without being glued to the monitor, and what the results have been so far.
What Macro Sentiments are
Launched in November 2019, Macro Sentiment Indicators are Cindicator’s proprietary indicators based on the collective intelligence of 163,000+ analysts and AI.
Here’s how the indicators are built at the high level:
- Every week the Cindicator team posts a series of questions to 163,000+ analysts registered on its platform;
- The questions ask about current and future economic, political, and business conditions and there aren’t any right or wrong answers, it’s a way to gauge the sentiment;
- Machine learning algorithms assign weights to their answers based on their previous track records so that votes from analysts with high accuracy get more prominence;
- The resulting indicators are 6 numbers from 0% to 100%;
- The crucial part is the week-on-week difference in indicators — a big change up or down might show that something is about to happen.
Ok, what does that have to do with the FX market?
In short: nobody knows but it captures the feelings of the crowd in the market.
From a theoretical point of view, Macro Sentiments are a combination of the wisdom of the crowd and AI/ML:
- Crowds are shown to make better predictions than a few experts;
- ML models further increase accuracy comparing to a simple average across the crowd.
More importantly, this work as hundreds of subscribers can attest.
Important point: the indicators by themselves are just data points. Macro Sentiment indicators don’t actually say anything about buying or selling any instrument.
However, the Cindicator team and the subscribers’ community noticed consistent patterns between the changes in these sentiment indicators and market trends.
This worked for trading the S&P 500 and the latest performance shows that Macro Sentiments could also be successfully applied in Forex trading.
Forex strategy with Macro Sentiments
There’s no right or wrong way to use Macro Sentiments and you can experiment with your own strategy.
This sample strategy developed by Friess, one of the subscribers, simply shows a way to approach FX trading with sentiment indicators.
The strategy is similar to CalvinXTZ’s early approach where the direction of the trades is determined by the difference between the new indicator and the one for the previous week.
Here is how this works:
1) Look at the average sentiment change:
- if it's above 0%, then buy EUR/USD;
- if it's below 0%, then short EUR/USD.
Enter the position on Sunday evening, a specific time does not matter.
2) Start with 10x leverage.
3) Select take-profit and stop-loss targets to have a risk-reward ratio of 1:4.
- Stop loss is at -0.5% from the entry position (with leverage that would be -5% loss for your position);
- Take profit is at 2% from the entry position (with leverage that would be +20% P&L).
If neither the stop-loss nor take-profit order kicked by late Friday, close the position at whatever the market rate is.
As you can see, this is a very simple strategy that only requires you to open 1 trade. It doesn’t require you to sit in front of the monitor for hours or use complicated math models.
Also, you can build on this strategy and improve it but its simplicity is useful. By frequently tweaking a trading system you can’t really tell if you’re making it better or worse because short-term results don’t really matter in the long run.
Now let’s see how this FX trading strategy did so far.
Results: 46% in 3 months
While the earliest Macro Sentiment Indicators date back to November 2019, the basic version of this strategy was developed in September 2020.
One of the subscribers has started to use this strategy in February — that’s the live trading part.
In the subscribers-only chat, you can see a history of actual trades with entry, SLs & TPs and results for each week.
Common questions
Which broker to use?
You can use any broker, they are pretty much the same. Some subscribers use Oanda or FXCM but that’s not an endorsement.
What leverage is available?
Most FX brokers offer leverage of up to 500x but that’s very risky. Given the volatility of EURUSD, leverage of 10x might be considered conservative. For other pairs, it should be even lower.
What’s the minimal account deposit to start using this?
It’s up to you to decide. The minimal trade size depends on the leverage. But it’s not a strategy to YOLO. It’s a long-term approach and you need to manage risks appropriately.
How big should be each trade?
Your weekly position depends on the leverage: the higher it is, the smaller should be the position size to make sure you can survive several consecutive losses.
Is there data to backtest the strategy?
Yes, you can sign up for a free trial and get the full data in the Discord community.
Try FX trading with Macro Sentiments
As we have seen, Macro Sentiment Indicators give a real edge in the Forex market. Even a simple trading strategy with just one trade a week and moderate leverage can generate a substantial profit.
If you still have questions about the indicators or the strategy, sign up for a free 2-week trial and head to the #forex-signals channel in the subscribers’ Discord.