Market sentiment index


In fact, for this purpose and are all oscillators. Many are available in the technical analysis indicators are well isolated point of reversal of the market, showing them their exits from the overbought and oversold (overboughtoversold). However, they are unable to distinguish between the point to reverse the trend of short-time and small amplitude kickbacks. As in the period of the long-term trend in one direction and in the horizontal corridor (in the absence of any direction of the market), this oscillator is equally cheerfully runs from overbought to oversold and back. These properties are characteristic of the most common and widely used by traders indicators RSI and Stochastic, which have a local nature, that is calculated from the values of the graph in a very non-large interval.

On the other hand, indicators, designed to highlight the trend (MACD, MA, etc.), well show a trend (if the indicator is that it points to the upward trend of the market, if the indicator is falling, it is a signal of a downward trend), but they give out signals of changing trends with large delay, since they use an average over long time intervals.

Many traders try to create new indexes, summing up (the average) number of standard indicators, but this results in worse outcomes than when working with these indicators in isolation, since this averaging spreads useful personality, and it identifies the general trend is not better than each indicator itself. I also once tried different options like (RSI + Stochastic), as well as more complex structures, but did not find convincing. Even success in developing a new indicator index candle power, addressing the major levels of market movements (open, high, low, close of each candle), and thus may produce significant reversals in the graphs, the main problem is still not solved.

The idea came from a similar approach to macroeconomic approach to the description of business cycles, where various indices are widely used, the ability to predict the future course of economic development. Moreover, among these there are indices (indices mood or business), which are based exclusively on the basis of a survey of opinions of participants and not on measurements of prices, output, etc. It turns out these questionnaires sentiment index is very strongly correlated with the real dynamics of the economy and can be used for its prediction.

But one of the basic philosophical principles of technical analysis and is the price includes all. So, in the graphs of exchange is all the information on market sentiment, you just pull it out and use correctly. Power index candles, built on the idea of a numerical coding candlestick chart, just ask it is used, and after several attempts, managed to pick up the indicator, it is suitable for use as an index of market sentiment. One of the examples shown in the hourly chart the British pound in the figure.

But the more I tried various options for building the index, the more convinced that it's not the particular method of calculating the indicator. In fact, the index of sentiment - is some new way to use technical indicators to measure the degree of confidence that a particular pivot point on the graph can become the beginning of the express and long trend.