Discussion in 'Psychology' started by crgarcia, Sep 17, 2009.
Are there mechanical tests or indicators to measure crowd optimism?
google: pee in the pants testing. It is a little seasonal, however.
Look at where prices are with respect to prior high/low extremes in multiple time frames.
The best way I use to measure sentiment is volume at previous highs/lows. So what I am patiently waiting for are double tops/bottoms with reduced volume. I use very tight protective stops of a few tics, cause if Price runs one point or more in ES at extremes, that is not showing trend ending but renewed strength. Also the time of the day is so important as well in relationship to time of the trade, if there is 1.5 hours left in the day session, Price will normally test the highs/lows of the day especially if Price has tested the highs/lows a few times, and it will do so to trip the stops of the inexperienced. What a grand short trade it was on the highs of Friday.
So this can be seen as Divergence between Price and Volume. I seldom trade breakouts in ES cause of all the false trades generally for me, but when this pattern lines up, the reward is most acceptable to risk.
I know that there are good breakout traders out there, but I am not one of them, after trading for nearly 28 years, markets either turn on my entries or I am out quick. If a level is supposed to be good support/resistance, price will stop.
Another way of using this kind of Divergence is not for entering the market, but a way to tighten stops to lock in profit.
I find that the longer amount of time between the first high or low with the second reduces false trades and number of trades.
I don't recommend new traders of trying to pick highs/lows though, I wiped out several times in my beginning of doing just this kind of trading. It is better to define trend and wait for a pullback because reduced risk and better reward for a beginner.
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