Market sentiment index

Indicators that I used as an index in market sentiment, in their mathematical constructions are by various oscillators, but their structure is chosen in a special way, and to be set on the basis of statistics of a particular market. On the behavior index is similar to the usual indicators RSI, Stochastic and others that without much delay (and sometimes ahead of) shows emerging trend reversals, but differs from them in that it tends to show a sufficiently long transition from overbought condition to resell and in the opposite direction. It differs from the trend indicators is that the direction of the market it does not show its direction at the right edge of the chart, and the very fact that the value of the indicator is in a certain range. While the value of the indicator is within this range, the market remains the same trend. In doing so, the indicator value may rise and fall - it is important that they remain within this range.

It is because of such behavior indicator I call it not an oscillator, and the Index. Assigning a different index than the oscillator index is not required to show specific points to open positions, instead he says for example, that previously formed the trend remains in force, despite the fact that the price chart now goes in the opposite direction. Index more than oscillators, summarizes market information, providing a more global assessment of the Language of the expected trends.

The index is designed to obtain based on his strong recommendation of the plan when the market really started to go in this direction, the move will be enough to make sense to open positions in that direction. Moreover, the index is able to predict the market turn in advance, for example, the market continues to move upward, and the index already shows a change of mood, and hence the fast turnaround.

Statistics obtained from the observations of the behavior of the index of sentiment, must show that if for a few hours keeps a certain mood (bull, bull or a bear, bear), then the best option would be just to open positions in the hand, show index. Therefore, when a trader missed the best time to open, say, a short position, but the index continues to maintain that mood down (bear) market persists, then you can safely roll back upstairs to wait and wait for the opportunity to open a short position. It is these properties sentiment index will facilitate early detection of the initial moments of a good trend, and latecomers to retain a good chance to join the beginning of a movement of the market.

Economic analogy

For a proper understanding of the nature of the Index and the peculiarities of its behavior is very appropriate analogy with the dynamics of the business cycle (business cycle). Ups and downs are typical for the economy and in the case when it is in the process of sustainable development. This development of the economy means that after a period of decline (recession), its main indicators (GDP, industrial production, business activities, etc.) are starting to improve (reduction) and then come out with new, higher high (growth or expansion) . After reaching these heights is sure to come slow and the new recession, but for normally developing economy, this recession does not go into crisis, and is replaced by new growth and the rise to a higher peak. If each new minimum is not as deep as the previous one, and each new high above the previous one, then this is a rising trend of economic development.