Market sentiment index


The ability of the Index to signal turning points indicate the direction of the market and his mood is confirmed by statistical data obtained from the observations of his behavior on the charts of major currencies. For example, one of the variants of the Index average cycle time, ie the time during which the index makes a move from minimum to maximum and back, was about 44 hours. From this time index of less than 1/3 wire in the areas of high and low values, and the remaining time (more than 2/3) moves from high values to low or vice versa. The amplitude of the movement of the market during the half-cycle (ie, the difference between the maximum and minimum values of the market for as long as the index goes from maximum to minimum or vice versa) varies greatly for different rates and in different periods of the life market. Typical range of values of the amplitude - 120-250 points. This means that over time, while the index points to a certain direction of the market, intra-day trader may well be time to open and close a position, not even one.

When the index is in the extreme ranges of values, the direction of the market is small - schedule at this time can have time to get up and down equally. If the focus of the market to measure the value of the ratio (up stroke - stroke down) / (up + stroke stroke down), over periods of time that index was in the low and high values, the direction will average about 11 %. And for the period until the index moves from one extreme to the other range of values (ie the index indicates the presence of the prevailing mood in the market), the direction of the market is approximately 25%. This means that the best solution would be to hold the position in the specified index of the direction, because, while the index shows that the mood does not change, the market moves in the direction of mood have a typical value of about 150 points, and kickbacks - 90 points.

I note immediately that the above specific figures are conditional, they are derived from limited statistical observations and are given here only to illustrate the properties of the index. The actual parameters of the behavior of the Index, based on which a trader will make trading decisions should be justified by its own statistics.

Principles of trade index

How to use this index to trade follow from its characteristics listed above. The graph of the Index are three values: high, medium and low. The boundaries of these areas are established under special rules, based on the statistics of a particular market, and updated periodically. For brevity, we denote the state of the market at the index in the areas of the extremes (high and low), respectively, high and low. These conditions are consistent with the usual understanding of the overbought and oversold (overbought / oversold). State of the market, located in the overbought / oversold, is unstable, because after a significant move (which the market has done to get to one of these extreme regions) is imminent and significant pullback. Therefore, the market in the low and high values of the index does not have a definite mood in the sense that it is the mood ready at any time to change to the opposite.