A simple technique to measure the sentiment of the market

Simple is better

One of the reasons traders don’t trade with discipline its because the difficulty of their systems or strategies.

They keep adding a technical indicator for this, this other tool for that, etc. And they end up with a system that is very difficult to follow.

And as you already know, if you don’t trade with discipline you wont be able to achieve consistent results, which is your final goal right?

Well let me tell you something…

Simple will always be better!

So please, use simple tools and forget about those fancy indicators and tools that only cloud your market judgement!

Imagine yourself trading a system that is very simple to follow, a system that it’s clear when you got your signals, a system with clear rules (black or white, that’s it – no gray). It’s possible to have a system like that, you just need to get rid of those fancy tools and indicators.

Simple rules!

Anyway…

Here is a very simple technique I use everyday to determine the sentiment of the market.

I want you to take a look at this chart:

EURUSD

In case you are wondering, this is yesterdays H1 EURUSD chart…

What do you see in this chart? What gets your attention?

Ok… let me help you out:

EURUSD

Now its clearer isn’t it?

I put those boxes in to show you how many candles (therefore time) takes the market to reach the top of the range against how many candles it takes the market to reach the bottom of the range.

By looking at this chart you can clearly see that the EURUSD has a bearish sentiment. Which confirms the bearish market condition on the daily chart.

This shows you how easy is for the market to go down and compare it to how difficult it is for the market to go up.

For instance, in the second blue box, the EURUSD even reached the bottom of the range in just two candlesticks (two periods), and how many candlesticks it took the EURUSD to recover? A lot…

It seems as if the market is taking any excuse to go down.

When everything feels right…

Now, imagine this scenario.

You analyze the long term charts and conclude that it is likely to continue its way down (bearish market condition).

Then you switch over to the short term charts and you see a chart like the one above, with a very clear bearish sentiment.

How comfortable would you feel going short on that pair? Do you think this confidence will help you trade with more discipline?

Your turn

What do you think about this technique to measure the sentiment of the market?

Do you prefer to use fancy technical indicators or tools?

Please share your thoughts in the comment section.

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Raul Lopez

I've been trading the markets for more than 15 years. I believe the best way to trade is by adapting to the market conditions. You can learn it too, join our community .

  • ravikumarck

    Hi Raul … i need your help in understanding the pip

  • Adrian Friday

    Simple simple simple… It works.

    • Raul Lopez

      I know… simplicity is the key!

      How is everything Adrian?

      • Adrian Friday

        Im good man. Slow and steady. One pip at a time.

        • Raul Lopez

          That’s good!

          Send me an email Adrian, I have good news for you!

          Enjoy your weekend!

          • Adrian Friday

            Will do!

  • Daniel Maidi Masikinya

    THE WAY YOU MAKE USE OF THE VERY SIMPLEST METHODS TO JUDGE THE MARKET IS AWESOME, I LEARNED A LOT FROM YOUR IDEAS!!!

    • Raul Lopez

      Yep, sometimes simplicity is the key to get a better view of the market!

      How is your trading going?

  • Donald Schnell

    Raul, there is much discussion among conventional traders/gurus about sentiment. Some use volume, COT report (lagging), and their broker’s sentiment index (which only shows a fraction of the market). Your technique makes this very objective and observable. It is a KISS technique. I think your discovery is brilliant.

    • Raul Lopez

      Hey Donald! As always… I appreciate your insightful comments…

      How was your trading today?

  • richard

    Thank you. I have recently started to use rectangles to help identify breaks down from resistance and breaks up from support in the context of trend continuation from areas of congestion – got this idea from your SF box applied to retracements to resistance and fall backs to support. I did not enter your EURUSD trade because of the retracement to 1.3000 ( 3 July ) however I am eyeing the level1.2800 with interest and will look for an entry. Where was your stop for the 1.2985 EURUSD trade?

    • Raul Lopez

      Hello Richard,

      The SF Box is only valid if it forms a short term range around and important LT S&R level… Once it breaks The SF Box, it triggers a clear market condition, which allows us to trade in the direction of the break out…

      Cheers,

      • richard

        Hi Raul

        thank you for the clarification about SF boxes. I think there is one forming on the AUDUSD at the 0.90 support level. I use boxes on intra day charts to help me spot a break out – either up or down from areas of congestion – because it gives me both S and R levels for the congestion zone and I can easily see break outs from the zone highlighted by my rectangle – this worked for the NZDUSD and AUDUSD pairs yesterday on 30 minute charts even though the breakouts were against the trend!
        The USD seem is on an uptrend thanks to the FMOC tapering comments and if it continues to be bullish about tapering – release of the minutes on Wednesday-  I look to the AUDUSD to go further down to maybe 0.87 or beyond. I know you are not a economic calendar trader however in this instance I think the Fed is worth watching – also  EURUSD  pair for a break below 1.28000.  I am also watching USDNOK and USDSGD for another swing up if the USD continues to strengthen after the FOMC minutes are released.
        regards Richard

  • Tunde

    KISS

    • Raul Lopez

      Keep it simple stupid…

  • riyaz shaikh

    I agree with you simple is better

    • Raul Lopez

      Hello Riyaz, I’m glad you do… Good luck!