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Sentiment indicator from Dennis McNicholl's 2002 Book "Taming Complexity in Trading; Beating the Dow 3 to 1"
It uses statistical techniques to make the stock series stationary and then works on looking at the confidence intervals of the moving standard deviation of the smoothed transformed series.
It is best as a very short term indicator (he uses 2 days).
In the book he uses it by sorting a small watchlist of stocks (DJ Industrials for example) descending on the indicator and buying the highest one. Holding till it cycles back down then selling when it again moves up towards 1.
It can be used as a 'contrary' sentiment indicator so for example buy > 0.99 and sell < 0.75
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
