The index of market sentiment
Application of technical analysis in the FOREX market has its own salient features. Under normal amount of deposits available to the ordinary trader can only trade on intraday time scales (intraday trading). Occupy a strategic position by buying currency at the beginning of a long uptrend, and then within a few weeks or even months to see how rising profits - is the dream of every currency speculator. But for the intraday-trader is an unattainable dream. A simple analysis of the daily charts of major currencies shows that if you do not dream of the gift of fate, and rely on the actual behavior of markets, after the opening of a position must be prepared to survive safely roll back the size of two or three figures, if not more so. For daily charts is the natural scale of moves. But for most traders to avoid the possibility of potential losses of 2-3 figures is tantamount to not put protective orders (stop-loss) at all. And what ends up trade without protective orders, it is well known to anyone who tried to do it. The rest of it is better not to try.
Allotted us to place the fate of the foreign exchange market is on the hourly charts. It is quite possible to find reliable benchmarks for opening positions (support and resistance levels, trend lines), in which the market will show a reasonable protective order sizes (50-60 points), it is appropriate for the average trader's acceptable risk. But by itself the behavior of hourly charts are not easy working relationship within the time and amplitude fluctuations in the price trends of the sizes of moves such that most of the time spends in the market for lateral movement. Turning points in the graphs occur frequently, but not every one is starting a new trend, and by that time, when there is no doubt that the trend is formed, this trend is coming to an attempt to catch a break and tend to end stop-loss- ohms.
In the literature on technical analysis published so many different trading systems and a variety of approaches to their construction and analysis. But it is characteristic that almost all the authors demonstrate the effectiveness of their concepts on the material day (or larger scale) charts. Attempts to apply the same approaches to the hourly charts of the FOREX market immediately lead to a loss of credibility in the results. Although the basic principles of technical analysis are the same for all markets at all time intervals, but the automatic transfer techniques, safe working on the daily charts in intraday trading does not work. Perhaps there needs their own approaches.
My trading experience has shown that trying to catch a strategic position should not at the expense of planning the admissibility of a large rollback, but by the timely discovery within the daily position on the hourly chart. In intraday trading price change in the 200-300 points - it is not rolled back, this is a very solid move that we should strive to take in the form of profit rather than suffer a setback. Any position should be opened in accordance with the scale in day trading, including a position which a trader hopes to keep as strategic for several weeks, should be accompanied by a protective order of 50-60 points, not the size of 2-3 figures. The only trouble is that you never know in advance what kind of position has a chance to be strategic, so he took a small course, the trader is usually in a hurry to lock in profits. On the hourly chart is always enough of these guidelines, which suggest the trader where to stop. In most cases, then he makes sure that the right thing, but sometimes closed position, sadly watches as the market continues to move in the same direction, only now to join this course is much more complicated. Trying to catch up with just the market often results in disastrous results.
Is it possible to somehow fill the gap between strategic trade on daily charts and short positions in day trading.
The index, not the!
Attempts to use different oscillators, and build their own things start to hunt for new trends gradually led to the idea that you and I want to propose in this paper. The basic meaning of the proposed approach is that it is important not only to successfully pick up light, but also the right to use it in accordance with the purposes of trade. The current understanding of the behavior of the new indicators for the name - The index of market sentiment.
When the graph of the exchange rate is, say, a bull trend, and it shows the ups and downs, but every time it ends with a new rise above the previous high, and the new drop is not as deep as the previous one. This means that there is an upward trend. Like any trend, it will be broken sooner or later, and then it turns out that the breakout trend took place after one of these climbs, accompanied by a turn down. Which turn down end break of the uptrend, no one knows. If the schedule is set after getting down - it's just rolled back. And when the rollback has led to a breakthrough trend and the market has made a significant move down, we can only regret that time did not have time to open a short position.
Follow the same simple truth known to every trader - only open on a trend - in real life too, not so easy. When a new (in these arguments - bearish) trend is clearly confirmed that it is a trend, it is certainly ripe for a pullback. A good demand trends and good kickbacks. So, which opened with the trend, just as easy to get a loss, which opened as counter-trend. It is also well known to every trader.
In this sense, is itself the price chart is a lagging indicator of trends. And on the intraday charts is felt most keenly. It would be nice to have an indicator that would allow the early stages of rolling back to say whether this is just a pullback correction of the underlying trend, or is it the beginning of the fracture. Because miracles do not happen, then this indicator should also not exist. But try to find an index that would reliably property (in a statistical, of course, sense) are beginning to show trends of fractures - it is a reasonable goal.
Such an indicator, in terms of intraday-trader must possess two properties 1) time (without delay) to indicate their turn when the market starts to go in the opposite direction, and 2) after a long time to grow or remain in the high (low) values for the market to form an uptrend (respectively - to fall on a downtrend). In fact, for this purpose and are all oscillators. Many are available in the technical analysis indicators of well-isolated point of reversal of the market by showing them their exits from the overbought and oversold (overboughtoversold). However, they are unable to distinguish the point of fracture trends from short-term temporary and minor setbacks in amplitude. As during the existence of long-term trends in one direction, and horizontal corridor (in the absence of any direction of the market), this oscillator is equally cheerfully running from overbought to oversold and back. Such properties are characteristic for the most common and widely used by traders indicators RSI and Stochastic, which have a local nature, that is calculated from the values on the graph is not very large-interval.
On the other hand, the indicators, designed to highlight the trend (MACD, MA and others) show a well-formed trend (if the indicator rises, it indicates an upward trend of the market, if the indicator drops, it will signal a downward trend), but they give signals about the changing trends with large delay, since the use of averaging over long time intervals.
Many traders are trying to create new indices by summing (averaging) a number of standard indicators, but the result is worse results than when using these indicators in isolation, because such averaging smears helpful personality, and a general trend it identifies is no better than each indicator by itself. Even success in developing a new indicator index candle power, taking into account all major levels of market movements (open, high, low, close of each candle), and therefore able to devote significant reversals in the graphs, the basic problems still not solved.
The idea came from an approach similar to the macro-economic approach to the description of the business cycle, where the extensive use of various indices that can predict the future course of economic development. Moreover, among these indices, there are those (the indices of business activity, or mood), which are based solely on the basis of a survey of opinions of participants and not on measurements of prices, production volumes, etc. It turns out these questionnaires sentiment index is very strongly correlated with the real dynamics of the economy and can be used for its prediction.
But one of the basic philosophical principles of technical analysis lies in the fact that the price includes all. Hence, in the graphs of exchange is all the information about the mood of market participants, it is only necessary to pull it out and correct use. Index candle power, built on the idea of a numerical coding candlestick charts, directly asking for is its application, and after several attempts managed to pick up light, it is suitable for use as an index of market sentiment.