Sentiment Indicator is designed to indicate how big players feel about the market. This indicator gives the idea; whether smart money is pumping money in the market by creating fresh positions or liquidating their holdings by squaring off the trades.
Taking long position when smart money is bullish and taking short position when smart money is bearish is a profitable trading strategy for short term as well as swing trading.
Sentiment indicator Overview
Traders can plot sentiment indicator in Histogram form or in line form. This stand alone indicator helps to trade in direction of big players and hence it becomes very important tool in any trader’s decision making system.
This indicator helpful in identifying early reversal signals on the charts. If price makes new high and indicator doesn’t make new high it means that the professionals are not interested in the up move and they are exiting the positions from uptrend.
Since professionals are very pessimistic about the market, It indicates the negative sentiments of the smart players. Traders should look for taking short positions when sentiments are negative.
Sentiment indicator Explanation
If the price makes a new low and the indicator don’t make a new low it means that big players are not interested in the down move and they are exiting their positions from the downtrend.
Since professionals are very optimistic about the market, it indicates the positive sentiments of the smart players. Traders should look for taking long positions when sentiments are positive.
Sentiment indicator allows traders to take entry at the beginning of the trend hence traders need to trade reversal signals on the chart along with this indicator.
For trading long signal traders should look for structure breakout in ongoing downtrend and for trading short signal traders should look for structure breakout in ongoing uptrend. Traders should hold the trade till the time trend continues in their favor or they get any opposite signal on the chart.
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Sentiment: Buy conditions
- Down trending structure on the price chart.
- Price making lower low but sentiment indicator making a higher low.
- Take long entry on Structure breakout if 1st and 2nd conditions are satisfied.
Sentiment: Sell conditions
- Up trending structure on the price chart.
- Price making higher high but sentiment indicator making lower high.
- Take short entry on Structure breakout if 1st and 2nd conditions are satisfied.