While sentimental indicators are often overlooked compared to fundamental and technical analysis, they play an integral role in determining a trend’s overall direction. This is because you can use them to assess the market’s sentiment on a particular position. With this insight, you’ll know the direction the market or asset is heading.
Negative information on the globe’s economic health or a particular asset is a clue to short your positions, while positive data hints to take a long position. And once you understand how bearish or bullish the market is, you’ll be in a position to correctly predict how the market will behave in the future.Sentiment Indicator | Indicator Series Click To Tweet
Types of Sentiment Indicators
There are different types of sentimental indicators used by traders to determine to get insight on the stock or forex market. The most dependable ones include: (Try out indicators on Tradingview.com)
Odd-Lot Trading Statistics
This indicator gauges how many shares of a specific stock have been sold or bought in odd lots, with this usually not over 100 shares that comprise the majority of the stocks. According to the odd-lot theory, many retail investors who are less experienced and purportedly with the least money for trading are highly likely to sell or buy odd lots. This means they sell at the maximum point of bearish sentiment and buy at the peak of bullish sentiment.
Whenever this happens, the more experienced traders do the complete opposite. This means selling once they see the buy signal and buying after a sell signal.
Put/Call Volume Ratio
This sentiment indicator is the ratio measuring the entire number of puts to the total number of calls carried out in a single day. A call is an option that usually rises in value as the value of the underlying asset increases, while the put is an option that increases in value due to a fall in the value of an underlying asset.
This is an indicator that measures the price amounts for a security or index at a given moment, contrary to the mean price as gauged at a specific period. For investors, greater volatility is a source of concern because it’s causes uncertainty on whether the market is rising or declining.
Sentimental indicators are essential since they help you correctly determine how other traders in the market at thinking. And with these insights, you’ll be able to decide better whether a specific underlying asset will rise or fall in value before entering into a trade.
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