Since sentiment indicators mainly track the positions of retail traders, their positions often move in the opposite direction of the current market trend. For example, if the USDJPY currency pair continues to rise, the proportion of retail traders who are short will be higher than those who are long. From the above, it can be seen that sentiment indicators need to be interpreted inversely. When the proportion of long positions is significantly higher, the market outlook is bearish, and when the proportion of short positions is significantly higher, the market outlook is bullish.
Here are some examples:
If the long position proportion is ≤ 40%, the signal is bullish.
If the long position proportion is > 40% and < 60%, the signal is neutral, indicating no clear short-term market direction.
If the long position proportion is ≥ 60%, the signal is bearish.