volofinance Trading Strategy – Market Sentiment Analysis Tool: “Liquidity Ratio”

Among volofinance’s “3 Technical, 2 Analysis and 1 Volume”, there are 2 tools used for market sentiment analysis, other than the “advanced order book” tool previously introduced, another analysis tool is the FXSSI’s current ratio tool.

Compared with the term “current ratio” in the traditional stock market, which refers to an indicator of a company’s debt repayment ability; volofinance’s current ratio tool used in the foreign exchange market is a collection of major foreign exchange transaction data platforms and the top 10 mainstream liquidity trading volume indicators of currency pairs.

This tool allows volofinance’s trading strategists to view the sentiment of the entire foreign exchange market, determine the weakness of the buyer’s trend; cooperate with the Price Action technical indicators, to find the timing of the reversal of the market trend (Reversal) and the reversal point (Pivot Point).

FXSSI current ratio

On the FXSSI current ratio, the open positions of buy orders (long) and sell orders (short) are displayed as a percentage value, showing the current difference between the number of traders who have opened long and short positions, but completed orders are not shown in the tool, therefore past history would not affect the value of current ratio indicator.

Based on the FXSSI current ratio, volofinance shows the market sentiment of a specific currency pair, combined with the characteristics of “Buy when the market is fearful, and sell when the market is greedy” and the possibility of a market correction, to formulate a trading strategy that is opposite to the market trend.

“Easy on paper, hard to achieve in reality” this kind of trading strategy that is contrary to the market trend requires strong faith and precise judgment. In the foreign exchange market, fund managers with many years of trading experience need to cautiously find the best trend reversal point. When trading data on the FXSSI liquidity ratio show that more than 50% of the traders in the market are moving towards a trend, we will aim for the opportunity to reverse.


Why the market trend will reverse?

Compared with other financial markets, the products on the foreign exchange market are mainly countries, official currencies of different countries which are a manifestation of a country’s economic capacity and affect the settlement ratio of cross-border transactions. It is also a tool for national institutions to manage the domestic economy by increasing and reducing interest rates.

The extreme masses going towards the same trend are bound to arouse the attention of national financial institutions, and they are bound to issue counter inflationary measures. Judging the timing of this callback is one of the functions of FXSSI’s current ratio in volofinance’s trading strategy.