FX Bullish Consensus Tutorial
Bullish Consensus is all about extremes and divergences. The more common application is in the extremes of 20% or below and 90% or above.
Below 20% the theory of FX contrary opinion – on which bullish consensus is based – states the market is ‘sold out.’ Every trader who wants to sell has sold; prices can only go up, at least temporarily.
Above 90% the market is overbought. If everyone is bullish there is no one left to buy and prices can only go down.
Less well understood by traders, but also offering potentially valuable information are various divergences between prices and the bullish consensus. As prices rise to the extremes, bullish consensus should follow along. As prices fall to the extremes, bullish consensus should track with them.
In the example below of the EURUSD the student of FX Bullish Consensus will note two important technical behaviors which occured well between the extremes:
1) The bullish consensus rose very rapidly from the 30 November lows from Neutral to Bullish. Keep in mind the bullish consensus was only in the low 90s at the peak of 1.4281 on 4 November. In other words, prices rallied 1/3 but the bullish consensus rose 3/4. This offers really a third technical behavior to study: The ratio of a price move to the net change in bullish consensus over the same period of time against a calculated average over a long period of time is called the Expansion/Contraction Ratio (ECR).
2) Note the strong divergence from the EURUSD high of 1.3497 on 14 December (with a bullish consensus of 61) and the EURUSD high of 1.3424 on December 31 with a bullish consensus of 79.
The first week of January told an interesting tale of divergence: EURUSD prices collapsed 500 pips and the bullish consensus for 7 January fell back sharply, realigning with the price pattern and also decompressing.
The lesson? Don’t just use FX Bullish Consensus for extremes – watch those divergences. There is gold in the data – you just need to know where to mine!
GoodmanWorks FOREX Bullish Consensus figures are derived from opinions of professional-only FX traders and analysts. Participants rate each pair from 0-100, Bearish->Bullish with 50 as Neutral.
A study of FOREX contrary Opinion conducted by GoodmanWorks using FX data for fifteen years yielded some interesting results and led to development of the Weekly Power Index (WPI) and the Expansion/Contraction Ratio (ECR). Like all technical analysis FOREX contrary opinion is subject to interpretation and a suitable subject for deeper study.
There are NO advisory services, signal services, high-frequency or fully-algorithmic traders in the GoodmanWorks FX Bullish Consensus poll – just professional discretionary traders. The Weekly Power Index endeavors to find predictive value in sharp week-to-week Bullish Consensus changes and the ECR tracks the cumulative divergence between prices and bullish consensus.
The GoodmanWorks FX Bullish Consensus for ten active currency pairs is now available for $2499.00 per year.
GoodmanWorks FOREX Bullish Consensus is sent email to subscribers at 3:00 PM Eastern time on Sunday. The FX Bullish Consensus report also provides moving averages for each pair, the proprietary Weekly Power Index, ECR, commentary and research reports on effectively applying FX Bullish Consensus to your trading.
Limited to a maximum of 50 subscribers. Please email for availability.
THREE openings as of 30 July 2014.