Market sentiment index


The average range of the index, which is located between the high and low, is consistent with the state of the market, when it is dominated by a particular mood. After the release of the index of high mood is bearish (bear), and remains so until the index does not go down into the lower area (low). Conversely, when the index goes from the bottom to the middle area, the mood is bullish (bull), and remains so until reaching the upper region.

The general picture of the behavior of the graph of the Index and the location of areas shown in the figure (time chart of the British Pound, 23 March - 16 April 1999), which shows that the index often comes to the opposite field, and returns back to the other extreme in the area which the last time he went out. Say, the market sentiment index that was in oversold condition, goes into the area bullish sentiment (bull), but not rising to the upper region (high), falls back to low. Then again he comes out low and, having made a few ups and downs, close to high. Such returns and consistent growth cycles in the above macroeconomic analogy.

While the index is in the area of high values (high), should be open long positions after each rolling back down. Nor do we believe that the main movement of the market is upward movement, as the market is overbought and therefore prepared to reverse the upward trend. Therefore, when the index in the high we start looking at the chart orientation (support and the uptrend line), a breakthrough which could mean the beginning of a bullish trend and fracture the market turns down. Advance signal of the start of the turn for us is to get out of the high index in the middle area, and the market gets the state bear.

When the index is out of the overbought zone, we must assume that the place or, at least, is preparing to again bear-gate trends. Confirmation of the reversal will break down after a landmark on the chart, but the index may indicate the willingness of the market to spread, even when the graph is going up. Hence, it is the trader - it's a breakthrough which would mean a reference to a U-turn, and index the business has done. Assessing the effect of a guide, you should go short on a break down of this guide, if the index was released or sent to the output of the high values. Since the properties of the index provide a high probability of further downward price move after the index came from the top of the field, this position has a good chance of profitability.

In this case, all the usual trade rules must, of course, be respected. In particular, there must be provided a reasonable largest stop-loss, which coincides with the right-formed on a chart resistance level above the open position. The index does not promise to guarantee the success of the position, it only shows the times when the open positions are more likely to be successful.

These definitions and symbols illustrated pattern (time schedule for the Japanese Yen, 5 - November 23, 1999), showing a fragment of the Japanese Yen hour schedule with a full cycle sentiment index. The four horizontal lines indicate the boundaries of the here for Index values from -63 to -44 region of low, from -44 to 33 domain sentiment and from 33 to 60 area high. The vertical arrows mark the extreme points of the cycle index of sentiment, and the horizontal arrows indicate the boundaries of time intervals during which the market was in a certain mood (bull or bear); below is the complete cycle of the Index (fall and recovery) and bear part of the next cycle. Full circle, included between the two shown at the top falling arrows, consists of index decreased 62 hours duration and lift for 160 hours. Coming from the upper region, the index value was bear and kept it for 28 hours, then went into the lower region (low), where the mood of the market is uncertain. After 27 hours of index out of the bottom of the field, and the mood was the bull up to 100 hours, during which the index has formed two cycles of growth. After calling in the upper region of the mood of the market has once again become uncertain, for 17 hours should be ready for opening positions in any direction.