The GBP/USD sentiment has turned bullish as the number of traders going long on the currency pair has increased, according to the latest retail trader data. The data shows that 47.59% of traders are net-long, with the ratio of traders short to long at 1.10 to 1. This suggests that traders have started to believe in the strength of the GBP/USD pair and are betting on its continued rise.
Contrarian Trading Approach
However, as a contrarian approach to trading, many experts suggest that it is better to take an opposite view of the crowd sentiment. This means that if most traders are going long, it may be wise to go short, and vice versa. This approach is based on the idea that when a market is crowded with a particular type of trader, it is likely to experience a correction.
Current Scenario
The data shows that traders have remained net-short since February 28 when GBP/USD traded near 1.20. However, the price has moved 0.26% higher since then, indicating that the bullish sentiment is gaining ground. The number of traders net-long is 31.73% lower than yesterday and 29.60% lower from last week. This suggests that some traders have started to take profits as the price has risen, leading to a decrease in the number of long positions.
On the other hand, the number of traders net-short is 18.79% higher than yesterday and 23.80% higher from last week. This indicates that some traders are still betting on a correction and have increased their short positions.
Trading Strategy
Based on this data, a contrarian trader may consider going long on GBP/USD as most traders are currently short. This is because a correction may cause these short positions to be closed, leading to a rise in price. However, it is important to keep an eye on the market and close the position if the sentiment starts to turn bearish again.
Another approach is to wait for a clear trend to emerge before taking a position. This means waiting for the price to break through a resistance level or moving average before entering a long or short position. This approach is more conservative and may lead to fewer trades, but it also reduces the risk of losses.
Conclusion
In conclusion, the GBP/USD sentiment has turned bullish as the number of traders going long on the currency pair has increased. However, as a contrarian approach to trading, it may be wise to take an opposite view of the crowd sentiment. A contrarian trader may consider going long on GBP/USD as most traders are currently short, but it is important to keep an eye on the market and close the position if the sentiment starts to turn bearish again. Alternatively, waiting for a clear trend to emerge before taking a position may lead to fewer trades, but it also reduces the risk of losses.
