Market Sentiment

Discussion in 'Technical Analysis' started by vgd, Jul 13, 2005.

  1. vgd


    Market Sentiment - the feeling or tone of a market (i.e. crowd psychology).
    Gives us what knowledge about sentiment? Enables to evaluate, on what party it is better to be - on "Bullish" or "Bearish".

    If sentiment in the market grows it means there are some wishing to move the prices up. Why - not to become in a long position? And not because there are any prognosis's about the price, that not all traders have come in market and there is a high probability of movement up - reinforced by their operations. Sentiment is impossible to measure, it can only be evaluated. The evaluation of sentiment - is the analysis of events, audience, determination of techniques according to which traders usually act, i.e. the process of understanding that happens in heads of the market participants, and what stereotypes predominate in the given moment.
    Sentiment indicators - a general term used to describe indicators that gauge investor attitudes towards the market.

    - VIX, VXN
    - Put/Call Ratio
    - COT - Commitment Of Traders

    Sentiment indicators are employed in technical analysis to quantify the levels of optimism or pessimism present in various markets. For example, some indicators will account for all the long and short positions upon a particular exchange in order to determine a bearish or bullish market.

    The understanding and evaluation of sentiment is not The Holy Graal, and only effective enough possibility to understand, how the participants will act in the market. The operations traders are well formalized as patterns. Pattern - distinctive formation, image, structure, space or temporary distribution of processes, systematically repeating stable model mapping behaviour of traders in the market. Sentiment is effectively used on the first stage of construction of a trade system (for want of selection patterns).
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  2. vgd


  3. I don't know what a VIX is but the attached chart would have lead me to think that the price drop between Jan-May 2002 is an overreaction while in fact it was barely the beginning.
  4. vgd



  5. zelot