Cayman Indicator – alone against the crowd

Hello, fellow forex traders!

We all know that most of the market crowd is usually wrong. Using different metrics, all technical indicators try to express the sentiment of the crowd for understanding where the market will go. As a rule, the main reference point for this in the foreign exchange market is the price, as it is impossible to obtain accurate information, for example, about the number of purchases and sales on Forex due to the lack of a single information processing center.

But the dealing centers have such data. And today we will analyze the Cayman indicator, which makes it possible to look behind the “curtain” of one of the brokers.

Sentiment indicators are graphical or digital indicators that help determine the opinion of a group of people about the state of the market. If we talk about the sentiment indicators for financial markets, it should be noted that they show the general sentiment or, as is often said, the positioning of market participants regarding the further behavior of the price of the analyzing instrument.

Trade against the crowd

The most important question: what practical benefits can be gained by having an opportunity to assess market sentiments? If you learn to correctly assess the level of market optimism and pessimism, it can help you to earn pretty well.

For example, when the market is dominated by bullish sentiment, it means that most of the participants are in long positions because they believe that the price will continue to grow. Accordingly, when bearish sentiment prevails, it means that the majority of market participants are in short positions because they believe that the price will continue to fall. However, as you know, everything has its own limit, so the situation in the market is impossible when all players are buyers or sellers, or everyone earns.

At the first signs of an extremely bullish or extremely bearish attitude, a trader should consider protecting unrealized profits and, possibly, opening a position in the hope of a trend change. Key market reversals tend to occur when the majority of market participants (60% or more) are bullish or bearish. In other words, at the moment when the overwhelming majority of traders start to believe in the strength of the trend and join it, the insidious turn comes. On the other hand, most of the time the market is in a state of consolidation, or a weak bull or bear trend. In such market situations, it is better to refrain from trading altogether.

Determine the general sentiment of the market

Thus, in order to understand what impact the market can have on the financial instrument that you are trading, you need to determine the general sentiment of the market. In technical trade, the main principle is to study what market participants do, and not what they say and think.

By what means can you measure the market sentiment?

First of all, it should be noted that the forex market is a decentralized market, therefore it is impossible to create a universal indicator reflecting the sentiments and opinions of all participants of the forex market, as there is no accurate and reliable information on the total number and volumes of transactions in this market. However, a large broker, whose services are used by several dozens of thousands of traders, it is possible to offer an indicator based on information on the status of open positions and pending orders within the company. A great example is the AMarkets company having a substantial number of traders to determine objectively the situation on the market.

AMarkets offers traders a unique development - the Cayman indicator, whose goal is to identify potential market extremes, foreshadowing the beginning of a breakdown in the trend movement. It looks like this:

The bottom graph is the indicator itself, the upper one is the price chart.

How to use the Cayman indicator?

The sentiment indicator shows what percentage of traders buy and sell the currency, that is, who dominates the market. Cayman allows you to stay on the opposite side of the market crowd. You should know the rule: you want to trade with profit - stay in the minority.

Cayman has a fixed range of values from 0 to 100. If the volume of purchases for a particular currency pair increases - this means that most market participants buy up the currency. If sales volumes increase – people strive for correction. It is noteworthy, but the extreme values of the range 0 and 100 are almost never reached.

The indicator of market sentiment has its own critical values, the so-called extremes. It is very important to remember that the critical levels for different currency pairs are different. If the currency pair in the past unfolded when the 65% of the number of long positions was reached, it is most likely that this value is a critical level for it, and it is necessary to follow the signals of a possible reversal when it reaches it. If another currency pair reversed only at 90% of long positions‘ value, it is necessary to follow the reversal signals precisely when this value is reached.

Let’s give an example: for the EURUSD pair, the critical levels are Cayman levels of 30 and 70. If the percentage of orders opened in one direction reaches critical values, this can be regarded as a powerful signal not only for the trend slowdown and overdue correction but also for the probability of a trend change.

Levels 30 and 70 indicate overbought or oversold markets. If Cayman enters the zone from 0 to 30, it is implied that the currency pair has entered the oversold zone - we are waiting for the pair to turn upwards. If Cayman was in the area from 70 to 100, then the currency pair is in the overbought zone. So, it is time to get ready to move down.

In the screenshot above, you can see how the Cayman indicator for the EURUSD pair reaches the overbought zone for a short period of time, signaling a high probability of the euro’s price collapse. This is what happened: during the whole month, when Cayman stayed in the zone from 70 to 100, demonstrating the majority’s opinion that the European currency will grow, the quotations steadily decreased. As a result, those who used the signals of this indicator could earn 500 points of profit.

Caiman’s chart for a longer period of time also proves that in moments of extremes for bullish and bearish sentiments (levels 70 and 30 for the EURUSD pair), in most cases there is a breakdown in trend movement.

For clients of the AMarkets company, the Cayman indicator of market sentiment is available not only in the trader’s area but also in the MetaTrader 4 platform, where it is possible to choose any option of its display: an indicator or a widget.

This significantly expands the scope of analysis and creates enormous opportunities for building trade advisors based on the sentiment of the crowd.

How to install the market sentiment indicator on the MT4 platform?

For this you need to:

Download the indicator file CaymanIndicator.mq4;
Launch the MT4 AMarkets terminal;
Select the “File” menu, then “Open Data Folder”;
Go to the subdirectory “MQL4Indicators” and copy there the “CaymanIndicator.mq4” file;
Restart the MT4 AMarkets terminal;
Find the “Navigator” area in the terminal; then click on the plus sign in front of the “Indicators” section in this window. Then, from the dropped list, drag the Cayman indicator to a pre-open chart with the desired currency pair and timeframe.

At the moment, the Cayman indicator can work with the following instruments: EURUSD, GBPUSD, USDJPY, AUDUSD, NZDUSD, USDCAD, USDCHF, EURJPY, EURGBP.

The data is taken from the predefined symbols in the terminal. You can get access to its graphs from the “Market Watch” menu. To do this, right-click in the Market Watch window and select “Symbols.”

All tools available for analysis are in the “Cayman” column. Double-click on the desired symbol to appear in the Market Review.

Now you can open the sentiment chart in the form of candles directly in the MetaTrader4terminal.

How to install the current Cayman indicator value widget in the MT4 platform?

The indicator shows the ratio of purchases to the total trading volume in percent. For example, a Cayman value of 50% means an equal number of purchases/sales; 70% - purchases prevail;

Installing the widget:

Download the archive with the widget of the CaymanVidget.zip indicator and unzip it;
Start MT4 AMarkets (important: the indicator does not work in the MT4 terminal of other brokers);
Select the “File” menu, then “Open Data Folder”;
Go to the “MQL4Experts” subdirectory and copy the “CaymanMarker.mq4” file there;
Restart the MT4 AMarkets terminal;
Select the “Tools” menu, then “Settings”, then the “Expert Advisors” tab. Tick “Allow WebRequest for the following URLs” and add the URL: https://my.amarkets.org/trader
Drag the CaymanMarker Expert Advisor into the chart window.

For those who do not want to constantly monitor changes in market sentiment, expecting to achieve the next extremum, there is a Cayman expert advisor available. It generates trading signals based on the sentiment of the crowd, as well as oversold or overbought levels of an analyzed pair. You can download the Advisor in your trader’s area, from Services section - the Cayman sentiment indicator. The installation is similar to installing any other EA.

Conclusion

Of course, the fact that the sentiment indicator reaches its extreme value does not at all mean that the trader should immediately start looking for opportunities for buying or selling. Cayman should be considered as an auxiliary tool, indicating the preferred direction of the transaction. It is also important to remember that indicators of market sentiment are most effective on daily charts and larger timeframes.

And once again we draw your attention since this indicator is an exclusive development of AMarkets, then you can download it from your personal cabinet on the site of this broker.

Regards, Michael

ForexTraderPortal.com

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