Trading Strategy: Incorporating Sentiment, IGCS

Trading Strategy: Incorporating Sentiment, IGCS

IG Client Sentiment (IGCS) data can add a supporting layer of research to an existing trading strategy. This article will outline how IGCS can add value to a trading strategy as well as different types of strategies that align well to IGCS indications.

• We previously looked at how to use IGCS as a trading indicator.
• This article introduces the concept of incorporating IGCS into a trading strategy.
• If you’d like a guide that discusses the IGCS indicator in-depth, the link below can help:

Balance of Technical Indicators

Finding an appropriate balance of technical indicators to adopt in a trading strategy can be tough but the adaptability of the sentiment/IGCS instrument allows for engagement in a multitude of trading strategies. Sentiment data is mostly absent from other technical analysis indicators which is why incorporating a potentially leading indicator like IGCS can be beneficial. Many technical indicators try to do the same type of thing, such as identify overbought/oversold conditions: but IGCS is different in that it’s a sample of other traders’ positions in the same markets that many retail investors are working with.

Ways to Incorporate IGCS

IGCS/Sentiment can appear in different forms and appeal to different requirements from traders. This versatility allows for tremendous flexibility in the implementation of the tool. Below are the 3 primary mechanisms for incorporating IGCS into a trading strategy:

1. Trend Filter

IGCS is often incorporated into strategies to drive for trend-side bias. For example, a bullish trend, would be interpreted from a bearish IGCS output (negative or increasingly net short). This technique is generally supported in combination with other trend identification methods such as price action or other technical indicators.

2. Range Filter

Range trading strategies can entail looking for markets outside of the +/- 2 ratio between traders net-long to short and vice versa (see IGCS report chart below). Range trading involves identifying support and resistance zones whereby short entries are placed at resistance and long (buy) entries are identified at support zones. IGCS can support trade decisions with extreme ratios (exceeding +/-2) coincide with overbought (resistance zone) or oversold (support zone) signals.

3. Warning Signal

IGCS can give traders conflicting views relative to other technical or fundamental indicators. For example, if the prevailing trend is bullish (upward) yet IGCS points to a bearish bias. This could be indicative of a possible short-term trend reversal which can alert market participants to hold off on further long entries in the direction of the preceding uptrend.

IGCS as a Technical Indicator: Summary

IGCS is a utilitarian data point that can be helpful in a variety of ways. Like any other indicator, it should not be solely relied upon and instead should be used as a supplement to an approach. More data inputs can allow for more accuracy when it comes to trade decisions which is why IGCS can be such a valuable tool.

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