The only oversight in this concept is the fact that all forex volume is not aggregated . Using myfxbook outlook ( which can include a lot of off shore retail traders, a good thing ) and my own brokers open orders book ( probably mostly domestic retail traders ) can be combined to give me a good idea of where the crowd is going, but it isn’t the entire volume. You can bet your bippy all institutional trades are on some private broker line, where the volume isn’t and can’t be accounted for. So, the crowd, might actually be a band of ninjas in the dark.
I wouldn’t say the idea is completely out the door though, but a couple of things I have noticed.
- when the pressure of the crowd is one direction and switches over time to the opposite, that is when looking for an opportunity is the ripest, but will be always after institutional traders have entered/exited the market ( use of caution most important ).
- When the pressure is extreme ( 75% or more ), there is probably a larger amount of institutional traders sitting on the opposite end – most of them are waiting for the double pressure to occur when the majority finally gives up or has stops hit
This doesn’t mean the logic is dead, on the contrary, this is more active than ever. The idea would be though, the institution is to be watched for, as the crowd is often trying to hitch a ride with them. They ( the crowd ) are still wrong slightly more than half, and that is mostly because the institution is against them.