A simple technique to measure the sentiment of the market

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.

EURUSD, forex, sentiment


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 .