What do you guys think about timing markets (for investment purposing) using sentiment, namely the Ned Davis Research Crowd Sentiment Poll? Example here: http://beaconassetmanagers.com/3-beacon-blog/oil-sentiment.html FYI, save the flames, this is not something I'm looking to do. I'm asking for educational purposes.
without proof, it is noise. There have been scads of articles trying to match up scads of indicators or other things with outperformance.
I don't think it's a good idea either, but I'd like some more solid reasoning and maybe some examples that go beyond "I don't think it's a good idea."
It can "work" as long as you can identify a "data sample" of people in the market who tend to be consistently right or wrong and you get the info soon enough to act on it.
The way to look at a market is to study its metrics. Find out what points it offers daily. The number of points it offers is the sum of the gyrations; you add together the maximum points from the swings up and down sequentially, open to close. And the assumption is you are going to daytrade. If I take the NG market for December 2009 (22 trading days), it offered a maximum of 19609 points; thats a mean average of 891 points per day. This is a market offering a lot of points, open to close daily. Imagine if you only took just 10% net of that, trading just one 10$ contact, thats a $19,609 net profit. If I look at all the NG swings in December, they total 260 swings at a mean average of 75 points each. The logs I keep consist of numbers, not words. This is hugely more accurate than descriptive logs. It facilitates rational and exact comparisons and analysis. This also is a left brain approach (logical, sequential, rational, analytical, objective and looking at the parts). You can note that those who promote their systems on ET are right brained (random, intuitive, holistic, synthesizing, subjective and looking at wholes). While these are not all inferior elements, it explains why often their claims and contentions fail through the innate inexactitude of their wholly descriptive approach.
The only strategy that ALWAYS works: Buy after panics, sell after overoptimism. This always works, if you can tolerate quotes getting lower without panicking. Meanwhile you receive better dividends (since you can buy more stocks for the same money).
I agree with nazzdack. In terms of trading experience, it did not come on the horizon for me for most of my trading expereince. Once sentiment comes into view, it is very worth examining and "mining". The only group, I believe, that is worth tracking is "smart Money". As traderzones says, he deals relative to noise. Noise is not part of the market for people who have drilled down into the operation of the market and especially those who know what they are doing. It is almost a priori when thought through. Sentiment is most discernable with "smart money" and especially when it counts. Garcia sees the rare "knockout" punches he mentions at the end of profit cycles based on sentiment. Too bad, because the price action is over by then. Sentiment defines the dominance of trending and as may be seen there are non dominant interludes within trends. By wiring into those who are very perceptive, you get the clear advantage of being parasitic to their efforts and can take the ride. There are many formal measures of sentiment and they do fit in to various categories of sensitivty. The three that are most convenient to track are the coarse in overbought or sold (leading aspects of indicators (absolute or oscillator in nature)); medium in sensitivty such as the Accumulation/Distribution scalor measured from +5 to -5; and the finest leading sentiment of the "smart money" that is meaured on a tick level by looking at the ranging from and towards premium (this is NOT an inefficiency or anomally) Using sentiment as well as can be done comes in two flavors: making money and optimizing positioning during change. The most important is the holding through full profit segments. Since sentimnt waxes and wanes, it is important to have an intensity measure. You know you have it down when you can use the detector to see the transient in sentiment. The best trial approach on this is to be able to detect the non dominant move within trends as "seeing" the waning then the waxing going into the "end" of a trend. Another very convenient aspect of measuring sentiment is the period during overlap of trends. Call this the period from the first opportunity to take a segment profit until the last opportunity (See SKO's first and last chance queries and observations). On the DOM many games are played. Often price turns are depicted by Walls that are insurmountable (when there is an ordinary change in dominance). One time in the DOM, and it is a thing that if a person knows the difference between a retrace and a reversal (at their initial commnecement) where sentiment plays a key role, is where the overlap of trends ends. This is the only time a significant wall collapses as a consequence of sentiment change. Superficial traders who practice entering on the end of retraces get their balls cut off and go upsidedown immediately at this time. first they confused a retrace with a real reversal and they entered believing sentiment had NOT changed since they cannot observe sentiment. By knowing how to observe sentiment all this ballcutting is eliminated. Sentiment changes at the end of trend ovelap. A trader either measures sentiment or he gets TOLD sentiment. Those who get told are like a trader who is the OP of a forum on trading signals involving ATR as related to signal generation. Or as in another thread on using percentiles related to volatility. Underlying most meaures of the market or as signal generator approaches, is sentiment. sentiment appears in the picture as various times for various scenes. I feel using it's first derivative relative to expertise, is one of the best "anticipatory" indicators available. It certainly avoids operating inductively as well. It you cannot follow what I am saying do not worry about it. On the other hand trading parasitically off smart money is recognized by most experts as a good and convenient modus. Nazzdack is right on the mark!!!.
This is true for several reasons. My posts are dense. They are critical thinking oriented. When a person "works" on understanding markets a lot of thinking goes on from the first spark to an automated pane involving high utility. I spent about 4 months getting scoring down. As you have seen in the last several years there will NOT be a backtest of the scoring in the context of its universe and its signal generator (the unusual volume one pager). We know why, too. It would prove two things: one about a reader and one about an author. Here, for sentiment, a different tool arrived. Measuring smart money's activity is a leading indicator of indexes that smart money is NOT trading as the dominant player group. How often does a thread appear that enquires about using leading sentiment indicators for trading? How often does a method made public for quite a while become used by very many people? Not often, since that is not possible as a consequence of how most people think. You prove that every single day. What is it like for people who use smart money anticipatory indicators to read your posts? It is very humorous and worthwhile having the laugh. Try to reflect. you post a cross eyed guy lookiung at his cork and I respond by calling about 20 trades in order for the next day as a response. Try to imagine the anticipatory sentiment indicator of smart money on the days of those advanced calls and the call within minutes of the end of a short channel. The what if, is this: what if some ET members actually do learn to call the trades of the next day? what if they learn to use a smart money leading indicator? Well the answer is that they did and they do. You wasted years and years of your life saying the same thing. Nothing. you have nothing to say but you say it anyway to keep the threads I post in at the top of the list. Thanks. Put up another off topic pic for everyone amusement including mine.